Introduction to Price Discrimination
Introduction to price discrimination
In our study of the theory of the firm we have assumed so far that a business charges a single price for its products, naturally the reality is different!
Most businesses charge different prices to different groups of consumers for the same good or service. Businesses could make more money if they treated everyone as individuals and charged them the price they are willing to pay. But doing this involves a cost, so they have to find the right pricing strategy for each part of the market they serve and their revenues should rise, but marketing costs will also increase.
It is important that you understand what price discrimination is, the conditions required for it to happen and also some of the economic and social consequences of this type of pricing tactic.
What is price discrimination?
Price Discrimination
Definition of 'Price Discrimination' is a pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller will charge each customer the maximum price that he or she is willing to pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.
Price discrimination allows a company to earn higher profits than standard pricing because it allows firms to capture every last dollar of revenue available from each of its customers. While perfect price discrimination is illegal, when the optimal price is set for every customer, imperfect price discrimination exists. For example, Genting Highland Theme Park usually charge two different prices to play the games in the theme park. The prices target various age groups, including adults and child (below 50" in height). The prices fluctuate with the expected income of each age bracket, with the highest charge going to the adult population.
Price discrimination occurs when a business charges a different price to different
In our study of the theory of the firm we have assumed so far that a business charges a single price for its products, naturally the reality is different!
Most businesses charge different prices to different groups of consumers for the same good or service. Businesses could make more money if they treated everyone as individuals and charged them the price they are willing to pay. But doing this involves a cost, so they have to find the right pricing strategy for each part of the market they serve and their revenues should rise, but marketing costs will also increase.
It is important that you understand what price discrimination is, the conditions required for it to happen and also some of the economic and social consequences of this type of pricing tactic.
What is price discrimination?
Price Discrimination
Definition of 'Price Discrimination' is a pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller will charge each customer the maximum price that he or she is willing to pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.
Price discrimination allows a company to earn higher profits than standard pricing because it allows firms to capture every last dollar of revenue available from each of its customers. While perfect price discrimination is illegal, when the optimal price is set for every customer, imperfect price discrimination exists. For example, Genting Highland Theme Park usually charge two different prices to play the games in the theme park. The prices target various age groups, including adults and child (below 50" in height). The prices fluctuate with the expected income of each age bracket, with the highest charge going to the adult population.
Price discrimination occurs when a business charges a different price to different