Price Discriminating

Monopolist

Price Discrimination
What is price discrimination?
Why does a monopolist practice price
discrimination?
Why is it possible only for a
monopolist to practice price
discrimination?
How does the monopolist practice
price discrimination?
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 First Degree price discrimination

Second Degree Price Discrimination
Third Degree price discrimination
Conditions:
Geographical separation
Sell at different time periods
Different Elasticities for the product.
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First Degree PD

Perfect Price Discrimination

Personalised Price Discrimination
Willingness to pay
Extract consumers surplus
Difficult to implement

Second degree price

discrimination
Different prices by offering different
versioning of products
Different versions should have different
quality
Segment the markets first and target
accordingly
Goldilocks pricing- Rule of Thumb one
should at least have three levels of
products and price... Too many would not
be good too.
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 Midas- High end versions- non-price

sensitive customers.
Atlas middle ground versionsextravagance engineering
Hermes- Low end versions- frugal
engineering
Product differentiation through
bundling
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Airlines
Railways
Different seatings
Bundle with different products
Soft ware bundles
Profit generating as long as the marginal
revenue is higher than the marginal cost
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Third Degree Price

discrimination
Group pricing.
Different prices for different groups of
customer segments.
Segmented based on the elasticities of
demand.
Railways and airways charging different
prices for children and senior citizens.
Statistical software companies like SAS,
SPSS, MATLAB, etc charge a price to
students and another to corporate.
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