Price Discrimination Priscilla Rodriguez Economics 521 Feb. 19, 2007

What is Price Discrimination? Nonuniform pricing Charging consumers different prices for the same product Consumer surplus Deadweight loss

Successful Price Discrimination Market power Differ in price sensitivity Prevent or limit resale Example: Movie Theaters

3 Types of Price Discrimination Perfect price discrimination First degree Requires perfect information Example: Private Schools Quantity discrimination Second degree Charges consumers more for the first unit than for consecutive units Example: Staples Multimarket price discrimination Third degree Divides consumers into groups and charges each group a different price Example: Airlines

Other Types of Price Discrimination Two-part tariffs Second degree Charges consumers a lump fee (first tariff) for the right to buy goods Example: Costo & Sam’s Club Tie-in sales Second degree Required purchase Bundled Example: Grocery stores & Nivea