Price Discrimination

By J. Budi Assa
Price discrimination is a microeconomic pricing strategy where identical
or largely similar goods or services are transacted at different prices by
the same provider in different markets
Example:
◦ Senior citizen or student discounts at Museum
◦ Financial Ad, Gender Based (include free drinks at bars for women on
“Ladies Night,”
Price discrimination can also be seen where the requirement that
goods be identical is relaxed.
◦ For example, so-called "premium products" (including relatively simple
products, such as cappuccino compared to regular coffee with cream have a
price differential that is not explained by the cost of production. )
◦ Some economists have argued that this is a form of price discrimination
exercised by providing a means for consumers to reveal their willingness to
pay [ex.PWYW].
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 Three types of price discrimination

◦ First Degree ◦ Second Degree

◦ This involves charging ◦ This involves charging different prices
depending upon the choices of
consumers the maximum consumer.
price that they are willing to
◦ For example quantity, time period,
pay. collecting coupons
◦ Allows the seller to extract ◦ After 10 minutes phone calls become
the greatest amount of cheaper.
profits. ◦ Electricity is more expensive for the
first number of units. For a higher
◦ There will be no consumer quantity of electricity consumed the
surplus. marginal cost is lower.
◦ Loyalty cards reward frequent buyers
with discounts on future products.If
you collect coupons from a newspaper
you can get a discount.
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 Three types of price discrimination

Third degree
Third degree price discrimination
means charging a different price to
different consumer groups.
◦ Student discounts,
◦ Senior citizen railcard
◦ Cheaper prices by the time of the day
(e.g. happy hour’s in pubs – usually
earlier on in evening where demand is
lower

WIth price discrimination, the firm can charge two different

prices:£10 * 35 = £350£4 * 120 = £480Total revenue = £830.
Therefore, the firm makes more revenue under price
discrimination.

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 Benefit Price
Discrimination

Price Discrimination involves charging a different price to different groups of

consumers for the same good.
Price discrimination can provide benefits to consumers, such as potentially lower
prices, rewards for choosing less popular services and helps the firm stay
profitable and in business.
The advantages of price discrimination will be appreciated more by some groups
of consumers.
KEY POINT PRICE DISCRIMINATION:
◦ Companies use price discrimination in order to make the most revenue possible from
every customer.
◦ Industries known for using price discrimination to maximize revenue include airlines,
pharmaceutical manufacturers, and textbook publishers.

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 Journal Review
Towards a new price discrimination strategy
Exploring Pay-What-You-Want pricing in multi-channel retailing
Point Of Journal :
◦PWYW sellers use ERP (External reference price ) to indicate customers of its price expectations.
ERP is any pricing information like cost of production, market price and competitor’s price provided
during the purchase.
◦PWYW is a form of buyer-centered participatory pricing, also referred to as shared prices.
◦PWYW has an inherent attribute of endogenous price discrimination by way of different customers
paying different prices voluntarily for the same product/service.
◦The current research is possibly the first to explore PWYW viability in the multi-channel context by
exploring the consumer’s price perception process and critical consumer reactions through a well-
structured research framework.
◦Paying more than zero is also a “signal” to others that we are fair.
◦Pada PWYW A customer may value the product enough that they want to help the seller stay in
business.

Note:
◦In general, pay-what-you-want is most effective in low-competition marketplaces.

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