| What is Price Discrimination? | -When the Seller dishes out Different Prices to Different Consumers for the EXACT SAME PRODUCT
-If Products are not the same (1st Class and Economy Class) then it is NOT PRICE DISCRIMINATION |
| What Conditions must be in Place for Firms to Price Discriminate? | -Seller must have Price Making Power - so has to be Barriers to Entry. Monopolies and Oligopolies can do this
-Firm must split Groups of Consumers who have Different Price Elasticises of Demand. More Groups that can be Divided = Better the Gains
-Firm can’t allow Seepage ie Consumers can’t buy the Product at a Low Price and, themselves, sell it at a Higher Price that could’be been charged More |
| Give Examples of Price Discrimination? | -Theatres and Cinemas allow ‘Concession’ Prices for Students and Pensioners
-Window Cleaners charged More in a Smart Neighbourhood than Lower Income Area
-Train Tickets during Rush Hour more Expensive than train tickets not in Rush Hour
-Drugs sold at Different Prices in Different Nations |
| How does Price Discrimination affect Consumer Surplus? | -Consumer Surplus is the Difference between Actual Selling Price and the Selling Price the Consumer would be happy with.
-Price Discrimination attempts to Turn Consumer Surplus into More Revenue for the Firm |
| What is First Degree Price Discrimination? (Perfect Price Discrimination) | -First Degree is where Each Consumer is priced the Maximum that they’d Pay for.
-This turns ALL Consumer Surplus into Revenue for the Firm.
-This is basically Impossible in the Real World (Seepage and Cost of gathering Information) ,but it highlights the fear of exploitation |
| What is Second Degree Price Discrimination?
-What is the different between Second and Third Price Discrimination | -This is when Lower Prices are given to thus who buy Large Quantities - Bulk Buy
-This can turn Consumer Surplus, some of it, into Revenue for the Firm. It also encourages Big Orders
-The Difference between Second and Third Degree is that Second Degree DOES NOT know there are different Groups with different Willingness to Pay
-Supermarkets - LIDL - love Second Degree. |
| What is Third Degree Price Discrimination? | -This is when Firms dish Different Prices for the Same Product to Different Segments of the Market (Market Segmentation GCSE BUSINESS!!)
-These can be: Age, Times or Places.
-Firms have identified 2 Groups (Children and Adults) with Different Price Elasticities of Demand
-Maxing Profit, the Firm will charge a Higher Price to those with more Inelastic (Adults) than those who are more Elastic (Children)
-This creates even more Supernormal Profit, had the Firm set the Same Price for Both Groups. |
| How can Price Discrimination be seen as Bad and Good? | -It is seen as both Fair and Unfair. Ultimately, it lies in how the Extra Revenue is used
-Since Consumer Surplus is Converted, you’d expect for the Consumer’s sake that the Product is better in Quality or more Investment leading to Low Prices.
-Allocative Efficiency is Not Achieved as AR is more than MC (Demand does NOT equal Supply)
-Consumers are treated Differently, but it can be justified. Usually the Consumers who face the higher cost have the higher incomes so it can be seen as Income Redistribution (Revenue is funnelled to keep prices low for those who don’t have the income) |
