Definition of Price Discrimination
Price Discrimination is described as a strategic technique of pricing as per which identical services or products are transacted at various prices by the same provider within different sales territories. Price Discrimination is also known by the name of Price Differentiation. It is much different in its implementation from Product Differentiation due to a more substantial difference in cost of production for the differently priced goods involved within the latter strategy. Price Discrimination importantly depends on the variation in the consumers’ desire to pay.
Textbooks on Price Discrimination
Price Discrimination is a strategy that marketers need to focus upon strongly if they want to run a successful network of marketing in various locations for their products or services. Here are some details of textbooks that are related to the concept of Price Discrimination as follows:
- The Economics of Price Discrimination by Louis Phlips (Published by Cambridge University Press – Year 1983).
- Federal and State Price Discrimination Law contributed by Michael L. Denger,American Bar Association and Section of Antitrust Law (Published by American Bar Association – Year 1991).
Examples of Price Discrimination
Example 1: An interesting example of Price Discrimination can be First Degree Price Discrimination. In this kind of Price Discrimination, the monopoly seller of a service or product requires to know about the absolute maximum price that each customer desires to pay. By knowing about the absolute maximum price, the seller can sell the products or services to each customer at the maximum price he or she desires to pay, thus to transform the consumer surplus into revenues. Hence, the profit is equal to the sum of consumer as well as producer surplus.
Example 2: Another interesting example of Price Discrimination can be Second Degree Price Discrimination. In this kind of Price Discrimination, the price changes according to quantity demanded. Here, greater quantities are available at a lower unit price. Airlines are a practical application of this pricing technique in which it offers multiple classes of seats on its flights that are divided into categories like First Class and Economy Class. Hence, they can differentiate customers based upon preference and the airline can earn more consumers’ surplus.
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