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    Show Using Diagram and Other Analysis The Cases of 1, 2, and The 3, Price Discrimination?

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    Omar Mohamed
    There are three types of price discrimination: first, second, and third degree. First degree discrimination charges each consumer the maximum price and captures all consumer surplus. Second degree uses quantity discounts, charging different unit prices for different quantities purchased. Third degree divides consumers into groups like seniors and adults, charging each group a different price for the same item. Third degree discrimination directly sets prices for distinct consumer groups defined by attributes like age, while second degree allows indirect discrimination by offering lower average costs for bulk purchases. Price discrimination increases seller revenue but reduces consumer surplus, though extra revenue could lower prices by funding product or production improvements.

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    Show Using Diagram and Other Analysis The Cases of 1, 2, and The 3, Price Discrimination?

    Uploaded by

    Omar Mohamed
    39 views5 pages
    There are three types of price discrimination: first, second, and third degree. First degree discrimination charges each consumer the maximum price and captures all consumer surplus. Second degree uses quantity discounts, charging different unit prices for different quantities purchased. Third degree divides consumers into groups like seniors and adults, charging each group a different price for the same item. Third degree discrimination directly sets prices for distinct consumer groups defined by attributes like age, while second degree allows indirect discrimination by offering lower average costs for bulk purchases. Price discrimination increases seller revenue but reduces consumer surplus, though extra revenue could lower prices by funding product or production improvements.

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    There are three types of price discrimination: first, second, and third degree. First degree discrimination charges each consumer the maximum price and captures all consumer surplus. Second degree uses quantity discounts, charging different unit prices for different quantities purchased. Third degree divides consumers into groups like seniors and adults, charging each group a different price for the same item. Third degree discrimination directly sets prices for distinct consumer groups defined by attributes like age, while second degree allows indirect discrimination by offering lower average costs for bulk purchases. Price discrimination increases seller revenue but reduces consumer surplus, though extra revenue could lower prices by funding product or production improvements.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    39 views5 pages

    Show Using Diagram and Other Analysis The Cases of 1, 2, and The 3, Price Discrimination?

    Uploaded by

    Omar Mohamed
    There are three types of price discrimination: first, second, and third degree. First degree discrimination charges each consumer the maximum price and captures all consumer surplus. Second degree uses quantity discounts, charging different unit prices for different quantities purchased. Third degree divides consumers into groups like seniors and adults, charging each group a different price for the same item. Third degree discrimination directly sets prices for distinct consumer groups defined by attributes like age, while second degree allows indirect discrimination by offering lower average costs for bulk purchases. Price discrimination increases seller revenue but reduces consumer surplus, though extra revenue could lower prices by funding product or production improvements.

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    Show using diagram and other analysis the cases of 1 st, 2nd, and the 3rd, price discrimination?

    Price Discrimination involves charging a different price to different


    groups of consumers for the same good. Price discrimination can
    provide benefits to consumers, such as potentially lower prices,
    rewards for choosing less popular services and helps the firm stay
    profitable and in business. The advantages of price discrimination
    will be appreciated more by some groups of consumers.
    Price discrimination is most valuable when the profit that is
    earned as a result of separating the markets is greater than the
    profit that is earned as a result of keeping the markets combined.
    Whether price discrimination works and for how long the various
    groups are willing to pay different prices for the same product
    depends on the relative elasticities of demand in the sub-markets.
    Consumers in a relatively inelastic submarket pay a higher price,
    while those in a relatively elastic sub-market pay a lower price.
    There are three types of price discrimination: first-degree or
    perfect price discrimination, second-degree, and third-degree.
    These degrees of price discrimination are also known as
    personalized pricing (1st-degree pricing), product versioning or
    menu pricing (2nd-degree pricing), and group pricing (3rd-degree
    pricing).
    First-degree discrimination, or perfect price discrimination, occurs
    when a business charges the maximum possible price for each
    unit consumed. Because prices vary among units, the firm
    captures all available consumer surplus for itself or the economic
    surplus. Many industries involving client services practice first-
    degree price discrimination, where a company charges a different
    price for every good or service sold.
    Second-degree price discrimination occurs when a company
    charges a different price for different quantities consumed, such
    as quantity discounts on bulk purchases.
    In the diagram, the seller charges 5.20 per unit for the customers
    buying quantity 4, and 7.60 per unit for the customer buying
    quantity 2, which is less.

    Third-degree price discrimination occurs when a company


    charges a different price to different consumer groups. For
    example, a theater may divide moviegoers into seniors, adults,
    and children, each paying a different price when seeing the same
    movie. This discrimination is the most common.
    Third degree price-discrimination is sometimes known as direct
    price discrimination. Because a firm directly sets different prices
    depending on distinct groups of consumers (e.g. age) The
    alternative is indirect price discrimination where consumers can
    choose depending on their behavior, e.g. bulk buying gets lower
    average cost
    For example, a seller would identify two groups of customers
    (group A and group B) with different price elasticity of demand
    ( PED) as in these diagrams.

    To maximize profit, the seller would set the price for each group at
    a level where MC = MR. This means: it will charge a higher price
    to the group a with a more inelastic PED, it will charge a lower
    price to the group with a more elastic PED
    Price discrimination is good for sellers and possibly bad for
    others, it certainly results in increase in revenue for the seller,
    whether this is seen as fair or unfair depends on what happens to
    the extra revenue. The use of price discrimination means that
    some or all of the customer surplus is converted into revenue for
    the seller, for e.g.: the seller increases revenue at the expense of
    the consumers. However, the extra revenue could be used to
    improve products, or invest in more efficient production methods
    which might lead to lower prices.

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