Price discrimination

Not to be confused with Congestion pricing.

Price discrimination ("differential pricing",[1][2] "equity pricing", "preferential pricing",[3] "dual pricing",[4] "tiered pricing",[5] and "surveillance pricing"[6]) is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider to different buyers based on which market segment they are perceived to be part of.[7][8][2] Price discrimination is distinguished from product differentiation by the difference in production cost for the differently priced products involved in the latter strategy.[2] Price discrimination essentially relies on the variation in customers' willingness to pay[8][2][4] and in the elasticity of their demand. For price discrimination to succeed, a seller must have market power, such as a dominant market share, product uniqueness, sole pricing power, etc.[9]

Some prices under price discrimination may be lower than the price charged by a single-price monopolist. Price discrimination can be utilized by a monopolist to recapture some deadweight loss.[10][11] This pricing strategy enables sellers to capture additional consumer surplus and maximize their profits while offering some consumers lower prices.

Price discrimination can take many forms and is common in many industries, such as travel, education. telecommunications, and healthcare.[12]

  1. ^ William M. Pride; O. C. Ferrell (2011). Foundations of Marketing, 5th ed. Cengage Learning. p. 374. ISBN 978-1-111-58016-2.
  2. ^ a b c d Peter Belobaba; Amedeo Odoni; Cynthia Barnhart (2009). The Global Airline Industry. John Wiley & Sons. p. 77. ISBN 978-0-470-74472-7.
  3. ^ Ruth Macklin (2004). Double Standards in Medical Research in Developing Countries. Cambridge University Press. p. 166. ISBN 978-0-521-54170-1.
  4. ^ a b Apollo, Michal (2014-03-19). "Dual Pricing – Two Points of View (Citizen and Non-citizen) Case of Entrance Fees in Tourist Facilities in Nepal". Procedia - Social and Behavioral Sciences. 3rd International Geography Symposium, GEOMED2013, 10–13 June 2013, Antalya, Turkey. 120: 414–422. doi:10.1016/j.sbspro.2014.02.119. ISSN 1877-0428.
  5. ^ Bernard M. Hoekman; Aaditya Mattoo; Philip English (2002). Development, Trade, and the WTO: A Handbook. World Bank Publications. p. 378. ISBN 978-0-8213-4997-7.
  6. ^ Dayen, David (July 9, 2024). "The Emerging Danger of Surveillance Pricing". jacobin.com. Retrieved 2024-07-14.
  7. ^ Krugman, Paul R.; Maurice Obstfeld (2003). "Chapter 6: Economies of Scale, Imperfect Competition and International Trade". International Economics - Theory and Policy (6th ed.). p. 142.
  8. ^ a b Robert Phillips (2005). Pricing and Revenue Optimization. Stanford University Press. p. 74. ISBN 978-0-8047-4698-4.
  9. ^ Lott, John R.; Roberts, Russell D. (January 1991). "A Guide to the Pitfalls of Identifying Price Discrimination". Economic Inquiry. 29 (1): 14–23. doi:10.1111/j.1465-7295.1991.tb01249.x. ISSN 0095-2583.
  10. ^ Pettinger, Tejvan (2021-03-24). "Price Discrimination". Economics Help. Retrieved 2024-09-26.
  11. ^ Pettinger, Tejvan. "Price Discrimination". Economics Help. Retrieved 2023-04-21.
  12. ^ Tirole, Jean (1988). The Theory of Industrial Organization. Cambridge.