Price Discrimination

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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.

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BREAKING DOWN '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.

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RELATED FAQS
  1. What profit margin is average for a company in the electronics sector?

    Many industries practice price discrimination, including the entertainment industry, the consumable goods industry and the ... Read Full Answer >>
  2. What is the average debt/equity ratio of companies in the electronics sector?

    Companies benefit from price discrimination because they can capture 100% of the available consumer surplus, entice consumers ... Read Full Answer >>
  3. How do companies use price discrimination?

    Price discrimination is a strategy that companies use to charge different prices for the same goods or services to different ... Read Full Answer >>
  4. What are the different types of price discrimination and how are they used?

    Price discrimination is one of the competitive practices used by larger, established businesses in an attempt to profit from ... Read Full Answer >>
  5. What is the difference between product differentiation and price discrimination?

    Product differentiation and price discrimination are two strategies used in marketing and economics. Product differentiation ... Read Full Answer >>
  6. What is the difference between consumer surplus and economic surplus?

    The consumer surplus is the difference between the highest price a consumer is willing to pay and the actual market price ... Read Full Answer >>

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