Many industries practice price discrimination, including the entertainment industry, the consumable goods industry and the client services industry. Each one of these industries provides a good example of the three types of price discrimination, which is the act of charging different prices for the same good or service.

The entertainment industry practices third-degree price discrimination; different consumer groups are charged different prices for the same good. If a consumer is going to the movies, for example, and he pays for a $15 ticket, and his elderly grandmother pays only $8 for the same ticket, he is experiencing third-degree price discrimination. The senior consumer group is charged less than the average consumer for the same ticket.

The consumable goods industry practices second-degree price discrimination when different prices are charged based on the quantity purchased. If a consumable good costs $10, but a quantity discount is offered to consumers who purchase 10 or more of that good, they would be experiencing second-degree price discrimination.

Finally, many industries involving client services practice first-degree price discrimination, where a company charges a different price for every good or service sold. When a service is offered to a client, the price is often based on the value it brings to that client and the amount that client can pay. If a management training company works with IBM, for example, it would charge much more for the same services than if it was working with a small business owner. This type of price discrimination is also known as perfect price discrimination, since a company can capture 100% of the consumer surplus.

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  2. What are the different types of price discrimination and how are they used?

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  3. How do companies use price discrimination?

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  4. What is the difference between product differentiation and price discrimination?

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  5. Why is there a negative correlation between quantity demanded and price?

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