price discrimination Flashcards
when does price discrimination occur ?
Price discrimination occurs when a firm charges a different price for the same good/service in order to maximise its revenue
what are the different types price discrimination?
first degree discrimination
Second degree price discrimination
third degree price discrimination
what is first degree price discrimination?
occurs when a firm separates consumers based on their ability stores pay
what is second degree price discrimination?
occurs when a firms gives discounts for bulk buying e.g. 3 for 2
what is third degree price discrimination ?
when a firm charges different prices to different consumers for the same good/ service, e.g. rail fares are priced differently depending on the time of travel
what are the conditions required for price discrimination to occur ?
-the firm must have the ability to change prices and its works best when there are no/few substitutes
-some customers will be willing to pay more m and the firm must be able to identify these different consumer groups
ability to prevent resale of tickets-it must be able to prevent consumers being in the low - price sub markets and reselling in the higher ones
evaluating third degree price discrimination for consumers ?
Many consumers will lose out as they pay higher prices
Other consumers will benefit as they will be able to take advantage of the lower prices
Some consumers will gain as a higher price decreases the quantity demanded, and in some markets this can increase consumer utility
E.g. On train services it helps limit over-crowding
evaluating third degree price discrimination for producers
-The total revenue of producers increases leading to higher profits
-Firms increase their producer surplus at the expense of a decrease in consumer surplus
-Setting up and enforcing price discrimination can increase average costs
