Price Discrimination

Have you ever visited a museum with your family and realized that your parents, grandparents, siblings, and yourself are charged differently? Here is the term for it: price discrimination. How does it work, exactly? What benefits does it bring to the producer and consumer? And what types of price discrimination are there? 

Get started

Millions of flashcards designed to help you ace your studies

Sign up for free

Review generated flashcards

Sign up for free
You have reached the daily AI limit

Start learning or create your own AI flashcards

Contents
Contents
Table of contents

    Jump to a key chapter

      Frequently Asked Questions about Price Discrimination

      What is price discrimination?

      Price discrimination means charging different customers different prices for the same product or service. 

      How does price discrimination affect social welfare?

      Price discrimination can allow monopolies to capture greater market share and set a higher barrier for smaller firms to enter. As a result, customers will have fewer product choices and social welfare is reduced. Also, lower-income consumers may not be able to afford the product or service if the company charges maximum willingness to pay. 

      What are the three types of price discrimination?

      First degree, second degree, and third degree. First-degree price discrimination is also known as perfect price discrimination where the producers charge the buyers with their maximum willingness to pay and thus capture the entire consumer surplus. Second-degree discrimination happens when the company charges different prices depending on the amounts or quantities consumed. Third-degree discrimination occurs when the company charges different prices for different groups of customers.

      Why do firms price discriminate?

      The goal of price discrimination is to capture the consumer surplus and maximise the seller’s profits. 

      What are some examples of price discrimination?

      • The different prices of a train ticket depending on when you buy it.
      • The different prices for a museum entry depending on your age. 
      Save Article

      Test your knowledge with multiple choice flashcards

      How many types of price discrimination are there? 

      What are some benefits of price discrimination? 

      What is not a disadvantage of price discrimination?

      Next

      Discover learning materials with the free StudySmarter app

      Sign up for free
      1
      About StudySmarter

      StudySmarter is a globally recognized educational technology company, offering a holistic learning platform designed for students of all ages and educational levels. Our platform provides learning support for a wide range of subjects, including STEM, Social Sciences, and Languages and also helps students to successfully master various tests and exams worldwide, such as GCSE, A Level, SAT, ACT, Abitur, and more. We offer an extensive library of learning materials, including interactive flashcards, comprehensive textbook solutions, and detailed explanations. The cutting-edge technology and tools we provide help students create their own learning materials. StudySmarter’s content is not only expert-verified but also regularly updated to ensure accuracy and relevance.

      Learn more
      StudySmarter Editorial Team

      Team Microeconomics Teachers

      • 8 minutes reading time
      • Checked by StudySmarter Editorial Team
      Save Explanation Save Explanation

      Study anywhere. Anytime.Across all devices.

      Sign-up for free

      Sign up to highlight and take notes. It’s 100% free.

      Join over 22 million students in learning with our StudySmarter App

      The first learning app that truly has everything you need to ace your exams in one place

      • Flashcards & Quizzes
      • AI Study Assistant
      • Study Planner
      • Mock-Exams
      • Smart Note-Taking
      Join over 22 million students in learning with our StudySmarter App
      Sign up with Email