This is the idea behind price discrimination. As noted in the last reading, the terms price discrimination and price differentiation can, in general, be treated as synonymous. Companies use price discrimination to differentiate prices.
This depends on the relative elasticities of demand in the sub-markets. Conditions for Price Discrimination The company identifies different market segments, such as domestic and industrial users, with different price elasticities.
Markets must be kept separate by time, physical distance and nature of use. For example, Microsoft Office Schools edition is available for a lower price to educational institutions than to other users.
The markets cannot overlap so that consumers who purchase at a lower price in the elastic sub-market could resell at a higher price in the inelastic sub-market.
The company must also have monopoly power to make price discrimination more effective. Because prices vary among units, the firm captures all available consumer surplus for itself.
Second-degree price discrimination occurs when a company charges a different price for different quantities consumed, such as quantity discounts on bulk purchases.
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.
An Example of Price Discrimination in Airlines Consumers buying airline tickets several months in advance typically pay less than consumers purchasing at the last minute.
When demand for a particular flight is high, airlines raise ticket prices.Price Differentiation vs. Price Discrimination Price differentiation and price discrimination: two terms used in Marketing and Economy.
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Richard Epstein demonstrates that . PRICE DISCRIMINATION-Definition Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider. Price Discrimination versus Price Differentiation. DEFINITION of 'Price Discrimination' A pricing strategy that charges customers different prices for the same product or service.
In pure price discrimination, the seller will charge each customer the maximum price that he or she is willing to pay. Price Differentiation vs. Price Discrimination Price differentiation and price discrimination: two terms used in Marketing and Economy.
First of all, it is appropriate . Price Discrimination vs Differential Pricing The terms Price Discrimination and Differential Pricing are sometimes used interchangeably, and there can be some overlap, but there are some important differences as well.