What is price discrimination explain the basis of price discrimination?

Answer 1

Price discrimination occurs when producers charges different prices to different people for reasons not related to cost. There are generally 3 types.

1st degree price discrimination - when you charge different prices to different individuals, depending on their willingness and ability to pay. This attempts to capture all the consumer surpluses. e.g. auction.

2nd degree price discrimination - where prices differs when individuals purchase good in different quantities. e.g. the increment in parking charges for the 2nd hour will be lower than the first.

3rd degree price discrimination - where prices are charged differently to different group of consumers, depending on the elasticity of demand. Generally the group that has an inelastic demand curve will face higher prices. e.g. bus fares for elderly vs children vs adults.

Answer 2

Price discrimination is when someone selling a service or product sets different prices for different people. The seller will charge the highest price individual customers are willing to pay.