Price discrimination Definition:
Price discrimination is defined as firms charging their consumers different prices for the same good.
Price discrimination Examples & Explanation:
If you once took an Uber, you may have seen their surge pricing before. When that happens, you are taking the same taxi journey for double or even triple the price. This would be an example of price discrimination where producers charge consumers more, when they have a higher willingness to pay, despite the same good is being offered. This helps them maximise profits and results in a loss of consumer surplus. Another common example is charging different prices for child vs adult cinema tickets, so that cinemas can more fully monetise their capital/production (empty cinema seats). However, companies can only do so under a few conditions, such as having some degree of market power to set prices, and have consumers they can separate into groups with different price elasticities.
Price Discrimination Notes with Diagrams
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You may not have realised but more online e-commerce sites are using algorithms to price discriminate, like Amazon or Google. As they understand your purchasing patterns by what you bought/viewed in the past, they know the highest price you are willing to pay for the product and charges you that! What’s even more troubling is if more sites operate these algorithms, they are likely to charge you a similarly price by colluding like an oligopoly and erase competition in the market to maximise their profits. Finally there are three main types of piece discrimination in theory: the first degree can be done by charging each consumer at different prices; adjusting prices according to the quantity purchased by consumers will be the second degree; where the third degree means to change prices depending on different consumer groups.
Price Discrimination Multiple-Choice & Essay Questions (A-Level)
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