Price Discrimination Advantages And Disadvantages

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Every day in the world millions of individuals are dealing with a high number of decisions. The majority of them are in some way connected to a core economic factor, money. In fact, everyone tries to buy a product at a convenient price, the lowest possible, in order to get some kind of benefit trying to maintain a low expenditure at the same time. We are surrounded by thousands of producers and retailers who offer a huge amount of products which are very similar but sold at different prices. This phenomenon of charging a buyer with different prices for the same product or service is called price discrimination. Initially, it seems that setting different prices and being big-hearted with consumers, has no direct connection with profit maximisation. But it is the contrary, price discrimination enhances the profit. Its secret consists in picking up the consumer surplus when they are buying…show more content…
The first type of price discrimination, also called perfect price discrimination, occurs when a firm sets the single highest price that somebody is willing to pay for it, catching up the consumer surplus. The second consists in charging different prices according to the quantity bought by the consumer; generally the price tends to decrease as the quantity of the product increases. And the third and last price discrimination involves dividing the consumers in diverse markets and charging them with a different price (Gravelle, Rees, 2004, p. 194-204). In addition to that, the firms that price discriminate have to meet some conditions. First of all they have to be price makers, thus regulating the price as they want; secondly, the firm has to sell a good which is not going to be involved in further exchange at a higher price; as third and last consideration, the market needs to be well organized so as to classify the different categories of buyers according to their willingness to pay (Littenberg and Tregarthen 2009, p.
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