Question

What is the difference between the first and second-degree price discrimination pricing policy that a firm with market power may use? Which strategy allows the firm to make higher profits? Please explain

Answer 1

In case of first degree price discrimination the profit is maximized. this is because the entire consumer surplus is extracted when each and every consumer is charged his or her reservation prices. In case of 2nd degree price discrimination there are different blocks charged from different consumers at different prices which implies that consumers according to their bulk purchases are charged differently. Which generates a lesser profit because consumer surplus is not entirely extracted.