Price Discrimination

Statement

Price discrimination is the practice of charging different prices for the same product to different groups of consumers, where the difference is not due to differences in cost.

Notes

The H2 syllabus focuses on third-degree price discrimination — separating consumers into groups (by geography, age, or other observable characteristics) and charging each group a different price. This is distinct from first-degree (charging each unit its maximum price), second-degree (charging by quantity bought) and peak-load pricing (a higher price when demand is higher); those are noted only to be set aside. The conditions a firm must satisfy to price-discriminate, and its effects on producer and consumer surplus, are set out in applying price discrimination.