Question

As manager, you have decided that it’s time for some price discrimination to benefit your firm. There are typically three different “degrees” of price discrimination to choose from. Describe each “degree” of price discrimination, and then explain the specific “degree” you would use that has the greatest applicability to a range of goods that consumers typically purchase from your firm. Again, no hedging your bet. :-) Select only one specific degree. Do not select more than one degree or combinations of degrees.

Answer 1

Price discrimination refers to the practice of charging a different price for the same good or service. There are following three types of price discrimination -

1. First Degree Price Discrimination - When the firm charges different price for each unit consumed is referred to as First Degree Price discrimination. Thus, the firm captures all the available consumer surplus in this way.

2. Second Degree Price Discrimination - This refers to charging a different price for different quantities. For example, quantity discounts on bulk purchases.

3. Third Degree price Discrimination - It refers to charging a different price to different consumer groups. For example, charging different price of movie tickets from adults and children.

Most the firms in the industry practice third degree price discrimination by charging different prices from different groups of consumers in the market.