Discriminatory Pricing
Discriminatory Pricing: Price discrimination is a marketing approach in which a vendor charges varying rates for the same product or service depending on what they believe the consumer would agree to. The merchant charges each consumer the greatest amount he or she will pay under pure price discrimination. The merchant divides clients into groups based on particular characteristics and charges each group a different price in more typical types of price discrimination.
The vendor believes that consumers in specific groups may be requested to pay more or less depending on certain demographics or how they value the goods or service in issue, hence price discrimination is used.
When the profit generated from separating the markets is larger than the profit earned from keeping the markets united, price discrimination becomes very lucrative. The relative elasticities of demand in the submarkets determine whether price discrimination works and how long different groups are prepared to pay different prices for the same commodity. Consumers in a more inelastic submarket pay more, while consumers in a relatively elastic submarket pay less.
With price discrimination, the corporation aiming to generate sales discovers separate market groups with varied pricing elasticities, such as household and industrial customers. Time, physical distance, and the type of usage must all be used to keep markets apart.
For example, educational organisations may purchase Microsoft Office Schools version at a lesser cost than ordinary customers. Consumers who buy at a lower price in the elastic sub-market cannot resale at a greater price in the inelastic sub-market because the marketplaces cannot intersect. To make price discrimination more effective, the corporation must also have monopolistic power.
Discriminatory Pricing in Its Many Forms
There are three forms of price discrimination: perfect price discrimination, second-degree price discrimination, and third-degree price discrimination. Personalized pricing (1st-degree pricing), product versioning or menu pricing (2nd-degree pricing), and group pricing are all terms for different levels of price discrimination (3rd-degree pricing).
Discriminatory Pricing in the First Degree
When a firm charges the utmost feasible price for each unit consumed, this is known as first-degree discrimination, or perfect price discrimination. Because prices differ across units, the company absorbs all possible consumer surplus, or economic surplus, for itself. Many sectors that deal with clients use first-degree price discrimination, which means that a corporation charges a different price for each commodity or service it sells.
Discriminatory Pricing in the Second Degree
When a corporation charges a different price for various amounts consumed, such as quantity discounts on bulk purchases, this is known as second-degree pricing discrimination.
Discriminatory Pricing in the Third Degree
When a corporation charges different prices to distinct customer groups, this is known as third-degree price discrimination. A movie theatre, for example, may separate customers into seniors, adults, and children, with each group paying a different amount to watch the same film. This is the most widespread kind of discrimination.
Discriminatory Pricing Examples
Price discrimination is used by several businesses, including the airline industry, the arts and entertainment industry, and the pharmaceutical industry. Issuing coupons, applying certain discounts (e.g., age discounts), and developing loyalty programmes are all examples of price discrimination. The airline business is a good example of pricing discrimination. Airline tickets purchased many months in advance are often less expensive than those purchased at the last minute. Airlines hike ticket rates in reaction to strong demand for a certain flight.
When a flight’s tickets aren’t selling well, the airline lowers the price of available seats to attempt to boost sales. Because many people choose to go home late on Sunday, flights departing early on Sunday morning tend to be more costly. Passengers on planes usually pay more for more space.
Price discrimination occurs when a merchant charges different prices to different consumers for the same product or service.
The corporation uses first-degree discrimination to charge the highest feasible price for each unit consumed.
Discounts for bulk purchases are considered second-degree discrimination, whereas varying rates for various customer groups are considered third-degree discrimination.