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SECTION III: PRICING FOR GREATER PROFIT

CHAPTER 13:
DIRECT PRICE
DISCRIMINATION
Presented by:
Kenneth R. Ediza
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What is Price Discrimination?

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In Managerial Economics,
“Discrimination occurs when aa single
firm charging different buyers to
different prices for the same product.”
- Price Discrimination/ Differential
Pricing/ Discriminatory Pricing/
Multiple Pricing
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According to terminology introduced by

Arthur Cecil Pigou, he divided Price
discrimination into three types:

❑ First Degree Price Discrimination

❑ Second Degree Price Discrimination
❑ Third Degree Price Discrimination
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A way of translating opportunity to

Discriminatory pricing is through
MARKET SEGMENTATION!

Ways to divide markets into segments:

1. Customer Segment Pricing- different

group of people pays different prices for the
same kind of product on the basis of a
segment they belong to.
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2. Product form Pricing- different prices

charged for different variants of the same
product.

3. Image Pricing- companies can charge

different prices for the same kind of a
product on the basis of an image, a
product enjoys in a market.
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4. Location Pricing- companies charge

different prices for the same product on
the basis of different locations where it
offered.

5. Time Pricing- the price of a product

varies with the time, such as the price
charged is less in off-season as
compared to the season time.
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6 Common Characteristics
used in Direct Price
Discrimination
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Characteristics:

1. Geography
2. Nationality
3. Age
4. Employer
5. Purchasing History
6. Income
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The purpose of price discrimination is

generally to capture consumer surplus. This
surplus arises because, in a market with a single
clearing price, some customers (the very low
price elasticity segment) would have been
prepared to pay more than a single market place.

Direct price discrimination is used to

increase the profit of the producers and also by
preventing the low buyer values to sell their low-
price goods to high buyer values.
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