Tazbid Joyad Shohan

 

Price Discrimination

FAQ

1. Q: What is price discrimination, and what are its main types?

A: Price discrimination occurs when a firm charges different prices to different customers for the same product, not based on cost differences. The main types are:

• First-degree: Charging each customer the maximum they are willing to pay.
• Second-degree: Charging different prices based on the quantity consumed or product version.
• Third-degree: Charging different prices to different demographic groups or markets.

2. Q: What conditions are necessary for price discrimination to be successful?

A: Successful price discrimination requires:

• Market power: The firm must have some control over pricing.
• Market segmentation: The firm must be able to segment the market and prevent resale between segments.
• Different price elasticities of demand: Different groups must have different sensitivities to price changes.

3. Q: How does third-degree price discrimination impact consumer surplus and producer surplus?

A: Third-degree price discrimination typically reduces consumer surplus as some consumers pay higher prices than they would under uniform pricing. Producer surplus increases as the firm captures more of the total surplus by charging higher prices to those with less elastic demand and lower prices to those with more elastic demand.

4. Q: Can price discrimination lead to an increase in overall social welfare?

A: Price discrimination can increase social welfare if it leads to an increase in output. For example, if a firm charges lower prices in a more price-sensitive market, it can sell more units than it would under uniform pricing, potentially making more products available to consumers who might not afford them otherwise.

5. Q: What are some examples of industries where price discrimination is commonly practiced?

A: Price discrimination is common in industries such as airlines (different prices for tickets depending on booking time and flexibility), cinemas (different prices for students, seniors, and adults), software companies (different pricing for business vs. personal use), and utilities (different pricing for residential and commercial users).