price discrimination versus price differentiation

1359 WordsNov 20, 20136 Pages
Price Differentiation vs. Price Discrimination Price differentiation and price discrimination: two terms used in Marketing and Economy. First of all, it is appropriate to make an accurate definition for both of the terms. Price differentiation is a pricing strategy that “charges different segments of customers altered prices for the same products or services.” Likewise, we can meet with the same definition if we look for price discrimination definition. Then, is there a difference between price differentiation and price discrimination? If yes, what is the difference between them? Firstly, I will try to explain two term and then I summarize an article related with multimarket price differentiation. Price differentiation is based on the…show more content…
According to authors, price differentiation has long been recognized as a strategy that companies can use to increase profits when consumers ' tastes and valuations of a good differ. Operating multiple distribution channels (e.g., offline and online stores) gives companies an opportunity to apply differential prices in these different contexts. However, existing empirical studies suggest that multi-channel retailers charge uniform prices through their different distribution channels in order to preserve channel consistency and avoid consumer complaints. In a market which has heterogeneous tastes and different products, companies can increase their profits by segmenting consumers and charging differential prices, which allows to capture additional consumer surplus. In the article, the authors mentions about the first study and analyze whether multi-channel retailers charge different prices for the same product through online and offline channels. The authors suggests that the price differentiation is profitable on the condition that the ratio of the marginal social value from an increase in quality to the total social value of the good increases with consumers ' willingness to pay. (Anderson & Dana, 2009) Moreover, they explain the key conditions for a successful price differentiation related with market, retailer, and product characteristics. In terms of
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