Price Discrimination
Definition
Price discrimination refers to the practice of charging different prices for the same product or service based on various factors such as location, age, or willingness to pay. It allows businesses to maximize their profits by extracting more value from customers who are willing to pay higher prices.
Analogy
Imagine you and your friend want to buy tickets for a concert. The ticket seller charges you a higher price because they know you're a huge fan and willing to pay more, while your friend gets a lower price because they're not as big of a fan. This is like price discrimination, where different people are charged different prices based on their willingness to pay.
Related terms
Consumer Surplus: Consumer surplus refers to the difference between what consumers are willing to pay for a product or service and what they actually have to pay. It represents the additional benefit that consumers receive when they can purchase something at a lower price than their maximum willingness to pay.
Differentiated products: Differentiated products are goods or services that have unique features or characteristics that distinguish them from other similar products in the market. These differences allow firms to charge different prices and engage in price discrimination strategies.
Monopoly power: Monopoly power refers to the ability of a single firm or entity in an industry to control market conditions and influence prices. When a firm has monopoly power, it can engage in price discrimination by charging different prices based on its market dominance.
"Price Discrimination" appears in:
Study guides (1)
Additional resources (2)
Practice Questions (12)
- Which of the following is a characteristic of price discrimination?
- A monopolist engages in price discrimination to:
- Which of the following conditions is necessary for price discrimination to be successful?
- Price discrimination can lead to an increase in consumer surplus when:
- Which of the following industries is most likely to engage in price discrimination?
- What is the primary goal of price discrimination for a firm?
- Which of the following statements is true about price discrimination?
- Which of the following is a potential disadvantage of price discrimination?
- Which pricing strategy is based on the principle of price discrimination?
- In which market structure is price discrimination most common?
- How does price discrimination affect market output?
- Which of the following is a potential benefit of price discrimination?
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