Basic Types Of Price Discrimination

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Price discrimination is defined as charging customers a different price for the same product. One major factor of price discrimination is elasticity of demand. Elasticity of demand measures the percentage of change in quantity to percentage of change in price. If the percent of change is greater than one, it is elastic. On the other hand, if the percentage of change is less than one, it is inelastic. For customers who are not price sensitive, or the demand is elastic, when using price discrimination, the price would rise. The price would be lower for customers who respond more to changes in price, or the demand is elastic. Whenever price discrimination is possible, it can be highly profitable for a business. Further, there are three different types of price discrimination. First-degree price discrimination, otherwise known as perfect price discrimination, is when a firm charges every customer exactly how much they are willing to pay for that good and charges a different price for every unit consumed. Some examples include car sales and roadside sellers of fruit and produce. Next, second-degree price discrimination is when firms discriminate though volume discounts. This is when a firm charges a different price for different qualities and allows buyers to purchase a higher inventory at a reduced price. An example of this would be quantity discounts for bulk purchases. While benefiting the high-inventory buyers, it can hurt the low-inventory buyer who is forced to pay a

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