Economics micro- price discrimination

Why would a firm price discriminate
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Terms in this set (5)
Why would a firm price discriminate
Optimise revenue and profit
Gain consumer loyalty
Gain producer surplus
Conditions necessary for price discrimination
The firm requires market power and must be a price maker as it means less competition
Consumers must have differing price elasticities or demand as if they had the same there would be no point doing different prices
The firm must be able to segment the market and prevent market seepage (people selling prowled tickets) as if not people won't buy the higher prices good or service
1st degree price discrimination
Closest market to 1st degree is market stalls as they can haggle prices
2nd degree price discrimination
This occurs when when firms discount spare capacity, often done on a last minute basis and done in theatres or hotels. It's due to the large fixed costs that they will be paying whether there is someone paying for the good or service or not therefore the firm would rather make either normal profit, break even or take a small loss rather than gain no revenue what so ever from providing the good or service.
3rd degree price discrimination
This is the most common form of price discrimination as it occurs when firms charge different prices for the same good or service in different segments of the market, when the firm has identifies different price elasticities of demand. The segments can vary such as time, incomes and age groups. When it is more expensive such as on a peak time for traveling by train the price will be more inelastic then when off peak therefore the price is higher, which is due to more people having to use the train system.