Price Discrimination

AAA

DEFINITION of 'Price Discrimination'

A pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller will charge each customer the maximum price that he or she is willing to pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.

INVESTOPEDIA EXPLAINS 'Price Discrimination'

Price discrimination allows a company to earn higher profits than standard pricing because it allows firms to capture every last dollar of revenue available from each of its customers. While perfect price discrimination is illegal, when the optimal price is set for every customer, imperfect price discrimination exists. For example, movie theaters usually charge three different prices for a show. The prices target various age groups, including youth, adults and seniors. The prices fluctuate with the expected income of each age bracket, with the highest charge going to the adult population.

RELATED TERMS
  1. Discriminating Monopoly

    A single entity that charges different prices, which are not ...
  2. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  3. Monopoly

    A situation in which a single company or group owns all or nearly ...
  4. Demand

    An economic principle that describes a consumer's desire and ...
  5. Price Skimming

    A product pricing strategy by which a firm charges the highest ...
  6. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
Related Articles
  1. Economics Basics
    Economics

    Economics Basics

  2. Setting Vs. Getting: What Is A Price-Taker?
    Trading Strategies

    Setting Vs. Getting: What Is A Price-Taker?

  3. 2 Key Tactics Retailers Use To Increase ...
    Entrepreneurship

    2 Key Tactics Retailers Use To Increase ...

  4. Antitrust Defined
    Personal Finance

    Antitrust Defined

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center