Price

Discrimination
Definition

Price Discrimination

• When firms actively adjust

prices according to the
willingness/ability of
different consumers to pay.
Types of Price
Discrimination

First Degree Second Degree Third Degree

• charge • discount for • market

whatever quantity separated
the market purchases into distinct
will bear e.g. groups
auction.
Third Degree
Discrimination

Time
Location •peak and off peak
•books in Australia toll roads
and US

Income Age
•Means tested •seniors, adults
government and children
services

Type
•domestic and
industrial uses of
electricity
 Gain market
share by Build brand
predatory loyalty
pricing

Increase output
and gain from Promote
economies of goodwill
scale

Reasons for
Achieve
Increase profits Price fairness
Discrimination
Pre-conditions for Price
Discrimination

Different market
Firm have Arbitrage can be
segments
market power limited
identifiable
Price Discrimination Example
Total Ticket Sales
Price Discrimination Example
Adult Tickets
Price Discrimination Example
Adult Tickets
Price Discrimination
Example

Charging New TR=

Charging Students $7 $3600
Adults are less Adults $9 yields $2800
MC = MR price sensitive yields $1800
therefore the (400 x $7)
600 tickets at MR Curve is (200 x $9)
$5 kinked.
TR = $3000