Price discrimination is a strategy that companies use to charge different prices for the same goods or services for different customers. Price discrimination is most valuable in the division of markets of customers is more profitable than to keep the markets combined.
The three main types of price discrimination first degree, second degree and third degree. Companies use these types of price discrimination to determine the prices to charge different consumers.
First Degree Price Discrimination
Using first-degree price discrimination to sell the product at the maximum price the consumer will pay. For companies to use this strategy, they should know that their consumers are willing to pay for good.
For example, automotive dealers can implement first-degree price discrimination, looking at how a potential buyer of the car dressed. The consumer who has the latest phone and wears expensive clothes, it’s more likely to be able to pay a higher price for a new car.
Second-Degree Price Discrimination
Companies are practicing second-degree price discrimination by charging different prices depending on the quantity demanded. Companies usually offer special deals for consumers who buy in bulk.
For example, communications companies can offer special discounts for the purchase of its various products. Many communication companies offer a package deal for Internet, phone and TV services at a discount to what consumers will pay for all three services separately.
Third-Degree Price Discrimination
The company may also participate in third-degree price discrimination by offering different prices for different groups. Some companies may use age discrimination of consumers and charge different age groups different prices.
For example, students and pensioners can be given a discount because they are highly sensitive to price.