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8: Price Discrimination
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- Price discrimination is a way for firms to turn consumer surplus into profits by charging different consumers different prices based on their willingness to pay. A number of pricing schemes are encountered in everyday commerce, which are discriminatory in one way or another. Such schemes are common in food and agricultural markets as well. The goal of this chapter is to explain the economic logic of these pricing schemes.
- Distinguish between first-degree, second-degree, and third-degree price discrimination.
- Explain the logic of bundle pricing and access fees to capture consumer surplus.
- Characterize the self-selection problem inherent in second-degree price discrimination.
- Explain third-degree price discrimination and provide examples encountered in everyday commerce.
- Describe conditions that are necessary for the various types of discriminatory pricing strategies described in this chapter.
- Explain the logic of package pricing (bundling across products), contractual tie-in sales, and captive-product pricing.
- 8.1: Overview and Objectives
- 8.2: Perfect or First-Degree Price Discrimination
- 8.3: Second-Degree Price Discrimination
- 8.4: Third-Degree Price Discrimination
- 8.5: Some Other Pricing Schemes
- 8.6: Concluding Comments
- 8.7: References
- 8.8: Problem Sets