WHAT IS PRICE DISCRIMINATION? Price discrimination or pricedifferentiation exists when sales of identical goodsor services are transacted at different prices fromthe same provider Price discrimination is also when the same price ischarged for the consumer from different areas whilethe cost of production is different.
DISCRIMINATION CAN BE DONEON THE BASIS OF: Age Sex Quantity purchased Time of purchase income
THREE CONDITIONS : Market control Different buyers Segmented buyers
TYPES OF PRICE DISCRIMINATION First degree price discrimination:This first type of product pricing is based on thesellers ability to determine exactly how much eachand every customer is willing to pay for a good.The seller will take the time to bargain or haggle withthe customer about the price that customer iswilling to pay.
SECOND DEGREE PRICE DISCRIMINATION Second-degree price discrimination takes placewhen a firm identifies two or more different groupswith different demand elasticity based on thequantities purchasedIn this case the seller charges a higher per-unitprice for fewer units sold and a lower per-unit pricefor larger quantities purchased.
THIRD DEGREE PRICE DISCRIMINATION A form of price discrimination in which a sellercharges different prices to groups that aredifferentiated by an easily identifiablecharacteristic, such as location, age, sex, or ethnicgroup.
EFFECTS OF PRICE DISCRIMINATION: Consumer surplus decreases Firm profits increase Output is increased social welfare and equity More consumers will now buy the product