Activity 8

Instruction: Differentiate the three types of price discrimination, and

give examples each.

First degree price discrimination

- In an ideal business world, companies could eliminate all consumer
surpluses through first-class price discrimination. This type of pricing
strategy occurs when companies can determine exactly how much each
customer is willing to pay for a particular product or service and sell it
at the exact price. The monopoly seller of a good or service must know
the absolute maximum price that every consumer is willing to pay. Price
discrimination is present throughout commerce.
- Examples include airline and travel costs, coupons, premium pricing,
gender-based pricing, and retail incentives.
Second degree price discrimination
- With second-degree price discrimination, it is not possible to collect
information on every potential buyer. Instead, companies set prices for
goods or services differently based on the preferences of different
consumer groups.
- Examples of second-degree price discrimination include quantity
discounts, when more units are sold at a lower per-unit price; and
block-pricing, when the consumer pays different price for different
blocks of a product say electricity, gas, internet, etc.

Third degree price discrimination

- Third-degree price discrimination occurs when companies price
products and services differently based on the unique demographics of
subsets of their consumer base, such as students, the military, or the
elderly. Third-degree price discrimination occurs when a company
charges a different price to different consumer groups.
- For example, a theater may divide moviegoers into seniors, adults,
and children, each paying a different price when seeing the same
movie. This discrimination is the most common.