Price discrimination in practice
Price discrimination in practice
First and third degree discrimination in the train tariffs, etc.
Price discrimination basically involves charging a different price to different groups of people for the same good. It needs some conditions. First of all, the firm must operate in an imperfect competition, it must be a price maker with a negative sloping demand curve. Second, the firm must be able to separate markets and prevent black market. Third, there would exist different consumer groups who have elasticities of demand.
Price discrimination is separated into degrees. Second, First, second and third degree price discrimination exist and apply to different pricing methods used by companies. First degree price discrimination involves charging consumers the maximum price that they are willing to pay. Then there will be no consumer surplus. Second degree price discrimination involves charging different prices depending upon the quantity consumed such as after 10 minutes phone calls become cheaper. Third degree price discrimination involves charging different prices to different groups of people. And this essay is going to focus on first-degree price discrimination and third degree one.
First-degree price discrimination happens when identical goods are sold at different prices to each individual consumer. It is based on the sellers’ ability to determine exactly how much each and every customer is willing to pay for a good. The amount they would be willing to pay for a good often exceeds a single competitive price. This difference between what a consumer is willing to pay and the price actually paid is known as consumers’ surplus. Thus a firm engaging in first degree price discrimination is attempting to extract all the consumers’ surplus from its customers’ as profits.
In general graph of monopoly, one of the most interesting things to look at is marginal revenue. While demand curve indicates the relationship between the quantity and the price, marginal
First and third degree discrimination in the train tariffs, etc.
Price discrimination basically involves charging a different price to different groups of people for the same good. It needs some conditions. First of all, the firm must operate in an imperfect competition, it must be a price maker with a negative sloping demand curve. Second, the firm must be able to separate markets and prevent black market. Third, there would exist different consumer groups who have elasticities of demand.
Price discrimination is separated into degrees. Second, First, second and third degree price discrimination exist and apply to different pricing methods used by companies. First degree price discrimination involves charging consumers the maximum price that they are willing to pay. Then there will be no consumer surplus. Second degree price discrimination involves charging different prices depending upon the quantity consumed such as after 10 minutes phone calls become cheaper. Third degree price discrimination involves charging different prices to different groups of people. And this essay is going to focus on first-degree price discrimination and third degree one.
First-degree price discrimination happens when identical goods are sold at different prices to each individual consumer. It is based on the sellers’ ability to determine exactly how much each and every customer is willing to pay for a good. The amount they would be willing to pay for a good often exceeds a single competitive price. This difference between what a consumer is willing to pay and the price actually paid is known as consumers’ surplus. Thus a firm engaging in first degree price discrimination is attempting to extract all the consumers’ surplus from its customers’ as profits.
In general graph of monopoly, one of the most interesting things to look at is marginal revenue. While demand curve indicates the relationship between the quantity and the price, marginal