- noun the action of selling the same good to different customers at different prices
- abbreviationprice differentiation (written as Price discrimination)
- price discrimination
- (written as Price Discrimination)
A process through which profit-seeking sellers in price-searchers' markets charge different prices for different increments of a good or service provided or charge different prices to different groups of buyers in segmented markets. In market-oriented systems of health care provision, the fact that rich patients may be charged more than poor ones for the same service has been held to be price discrimination (though the reasons given by its practitioners are of course different.).The diagram below shows the profit-maximizing price and output rate for a price-searcher who charges a single price (P). It is where marginal cost equals marginal revenue. The demand curve shows not only the maximum amount that will be purchased at each price but also the maximum amount that will be paid for each additional unit of the good or service in question. For example, the maximum payable for the very first unit is 0 b and the maximum payable for an additional unit when consumption is already at Q is Qa. The segment of the demand curve ba indicates the maximum amounts that would be paid by a person with this demand curve for increments of output in the range 0 Q. So the maximum the seller could obtain, if it were possible to charge the consumer the maximum willingness to pay, is the succession of prices in the segment, yielding additional profit Pba. In fact, in this case, one may readily see that the profit could be further increased by selling each unit at the maximum the buyer will pay up to output rate Q 9, where marginal cost equals price, which generates the same output rate as under price-taking conditions (though there is a transfer of consumer's surplus from consumer to seller, which does not happen under price-taking).
This form of price discrimination is rarely seen in explicit form. Mar- ket segmentation is, however, widely practised. In this situation, the output is produced, we assume, under identical conditions for two (or more) segmented markets as in the diagrams above. The conventional profit-maximizing price is charged so that in each market the marginal cost is set equal to marginal revenue (whether by careful design or chance) and the prices PA and PB are set in market segments A and B respectively. The higher price is charged in the segment with the lower price-elasticity.
- noun the practice of charging different prices in different markets or to different types of customer
- noun a pricing strategy in which a company sells the same product at different prices in different markets