The three types of price discrimination
Price discrimination is a pricing practice that involves charging different prices for the same good or service based on certain characteristics of the buyer. This practice is commonly used in the business world and is seen in various forms. There are three types of price discrimination: first-degree, second-degree, and third-degree. First-degree price discrimination, also known as perfect price discrimination, occurs when a seller charges a different price to each buyer based on their willingness to pay. This type of price discrimination allows the seller to capture the entire consumer surplus, thus maximizing the seller’s profits (Kolb, 2016). However, this type of price discrimination is very difficult to implement since it requires detailed information about each individual buyer’s willingness to pay. Second-degree price discrimination occurs when a seller charges different prices to different customers based on the quantity purchased. This type of price discrimination is commonly used by firms to encourage bulk purchases, as it allows the firm to capture more of the consumer surplus. This type of price discrimination is relatively easy to implement and does not require detailed information about each buyer (Kolb, 2016. Third-degree price discrimination occurs when a seller Cont…
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