The Concept of Price Discrimination

Every person in this world has different needs. In order to satisfy those needs, people tend to choose the best options which are available to them as per their taste and preferences and along the amount of money they can spend. We can now say that whenever we see any kind of product, a price always comes to our mind which we are willing to pay. Therefore if we make a less payment in compared to the amount, the difference will be consumer surplus.

The amount of price a customer is willing to pay always varies from one person to the other. On the basis of this condition, the supplier implements the different amount of prices for the same goods or the services offered by them in order to maximize his profit. This concept of economics is known as Price Discrimination.  Commonly there are 3 types of Price Discrimination.

• ·        First Degree Price Discrimination:

In this category of discrimination, it enables the business to get maximum amount the customer is willing to pay. It can be referred to as perfect price discrimination and at the same time one to one marketing pricing.

For instance, Whenever there is an auction of product, like an auction for painting, is going on, every customer aims to pay the maximum amount and thus the person who bids the highest amount gets the product.

•         Second Degree Price Discrimination:

In this category of discrimination, the same product with slight changes is being offered or sometimes a slightly different product is offered at different prices.

For instance, For this category, we can take the example of mobile handsets. Whenever a company launches a new phone with one model having standard color along with basic features, after few months the company will add some more features to the same model or at the same time introduce some different color with a much higher price.

•          Third Degree Discrimination

The supplier divides the customer into various groups or segments on the basis of some kind of characteristics and at the same time determine its price easily. It is also known as group pricing.

For instance, We often see many restaurants offering discount as per different criteria such as location, number of customers etc. Hence if a particular restaurant is near a school or college, it will provide a discount in order to attract more students as it potential customer.