Different prices for different customers for the same goods

Let’s talk today about how producers or suppliers use different methods to get maximum income out of each different customers. As you all know every person will have needs, to satisfy those needs they choose the best option available to them depending on their tastes and preferences along with the money they can spend. As we all must have experienced that whenever we see a product we try to come up with one price which we are willing to pay. If you pay less than that amount the difference is consumer surplus.

The price the customer is willing to pay differs from person to person. Based on this point the supplier implements different prices for the same good or services provided by him to maximize his profits, this concept is called price discrimination. Generally, they are divided in to 3 types:

·       First degree price discrimination: It can be said as prefect price discrimination where, it enables the business to obtain the maximum the customer is willing to pay. It can be said as one to one marketing or personalized pricing.

 Example: when you see in auctions you would have observed that every customer goes to the maximum he is willing to pay as it differs from person to person the highest bidder get the item auctioned.

·       Second degree price discrimination: It is the practice of creating or offering the same product with slight changes in the quantity or slightly different products by charging different prices.

Example: Best example for this type is pricing of smart phones. If you have observed the company come out with one model with basic features and standard colour. After some time they either add on some features or just introduce different colour at higher price.

·       Third degree price discrimination: It can be defined as group pricing as the suppliers divide the customer in to different groups or segments based on some characteristics and determine the price accordingly.

Example: some restaurants provides discount to different section of people based on his location and the number of customers. If the restaurant is beside a college he provides discount to students to attract more students.