PRICE
DISCRIMINATION.
Price
discrimination occurs when a firm charges a different price from
different groups of consumers for an identical
good or service, for reasons not associated with costs.
Objectives of Price Discrimination:
Forms
will be able to increase revenue. This will enable some firms to stay in
business which otherwise would have made a loss.
Increased
revenues can be used for research and development which benefit consumers.
Some consumers
will benefit from lower fares. Eg. Old peoples benefit from lower train
companies,old people are more likely to be poor
The other
objective to the consmer of price descrimination are – price discrimination is
likely to increase output and make the good or service available to more people
and the increased competition in the market leads to lower prices and more
choice.
Types of Price Discrimination:
First degree price discrimination:
o In
first degree price discrimination, price varies by customer's willingness or
ability to pay. o This arises from the fact that the value of goods is
subjective.
Second degree price
discrimination:
o In
second degree price discrimination, price varies according to quantity sold.
Larger quantities are available at a lower unit price.
Peak and Off-Peak Pricing:
o Peak
and off-peak pricing are common in the telecommunications industry, leisure
retailing and in the travel sector.
o
Telephone and electricity companies separate markets by time: There are three
rates for telephone calls: a daytime peak rate, and an off peak evening rate
and a cheaper weekend rate.
Third degree price
discrimination:
o In
third degree price discrimination, price varies by attributes such as location
or by customer segment, or in the most extreme case, by the individual
customer's identity.
Disadvantages of Price
Discrimination:
1. Some
consumers will end up paying higher prices.
2. Those who
pay higher prices may not be the poorest
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