price discrimination Flashcards
(6 cards)
define price discrimination
when a business charges different consumers different prices for the same good or service
what are the aims of price discrimination
- to increase total revenue by extracting consumer surplus and turning it into producer surplus
- increase total profit
- generate cash flow especially during a recession
- increase market share and build customer loyalty
- to make more efficient use of a firms spare capacity
define 1st degree price discrimination
charging different prices for each individual unit purchased (ebay)
on a graph how do we know it is 1st degree price discrimination
when MC=AR and MC is a horizontal line
define 3rd degree price discrimination
the charging of different prices to different groups of consumers on the basis of variations in peoples ability to pay
evaluation:
- a way some group may benefit from third degree price discrimination is that its based on age and income
- bus companies may charge students a lower price since they typically have a lower income so their demand is more price elastic
- this increases their real purchasing power
- therefor they can afford travel and can attend collage
- consequence can be an increase in consumer surplus
define 2nd degree price discrimination
it is also known as quantity pricing or menu pricing, involves offering different prices for different quantities for the sam product or service (bulk buy)
