price discrimination Flashcards
what is price discrimination?
the business practice of selling the same good at different prices to different customers
in what market can price discrimination happen?
only in a monopoly because the firm can set the price
why would a monopolistic firm do price discrimination?
so they can maximize profit
what does price discrimination require to work?
the ability to separate customers according to their willingness to pay
what is the benefit of price discrimination?
it can raise the economic welfare
who’s surplus is increased from price discrimination?
it is the consumer surplus but this causes no deadweight loss
what are the 3 forms of price discrimination?
first-degree price discrimination
second degree price discrimination
third-degree price discrimination
what is first degree price discrimination?
a situation in which the monopolist charges each consumer exactly their willingness to pay and the monopolist gets the entire surplus in every transaction
what is second degree price discrimination?
situation in which consumers are charged different prices based on the characteristics of their purchase, such as quantity or time of purchase
what is third degree price discrimination?
practicing dividing consumers into two or more groups with separate demand curves charging different prices to each group
what are 3 examples of second-degree piece discrimination?
a bakery might charge 0.50 for each donut but 5 for a dozen
a cell phone company that charges different prices for different data storage capacities
reward cards that provide frequent shoppers with a discount on future products
what is an example of third degree price discrimination?
seats sold on an airplane are sold at many different prices, 2 groups of customers of willingness to pay, business travellers with high willingness to pay
leisure travellers with low willingness to pay
what is the price discrimination strategy for selling airline tickets at many prices?
most airlines charge a lower price for a round trip ticket between two cities if the traveler stays over a Saturday night, charging leisure travellers a lower price and business travellers a higher price
