PRICE DISCRIMINATION

December 2012, Paper-II
Question Charging a different price in different markets is called
a) Price discrimination
b) Second-degree price discrimination
c) Third-degree price discrimination
d) Perfect price discrimination
Answer A
Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to. First-degree price discrimination, alternatively known as perfect price discrimination, occurs when a firm charges a different price for every unit consumed. The firm is able to charge the maximum possible price for each unit which enables the firm to capture all available consumer surplus for itself.
Second-degree price discrimination occurs when a company charges a different price for different quantities consumed, such as quantity discounts on bulk purchases. Third Degree Price Discrimination involves charging a different price to different groups of consumers for the same good. These groups of consumers can be identified by particular characteristics such as age, sex, location, time of use.