capturing consumer surplus - in competitive market, only 1 price set
- some consumers willing to pay more than that set price
- firm would make more money if they could charge people closest to what they're willing to pay
1st degree price discrimination - charging each consumer a different price
- results in no consumer surplus
- each consumer charged exactly what he/she is willing to pay
- marginal revenue no longer comes into play in deciding market price
- aka perfect price discrimination >> clearly no possible
- firms can't possibly know what each person is willing to pay
2nd degree price discrimination - charges different price for different quantities
- willingness to buy decreases as quantity increases
- firms may offer bulk sales at a lower per-unit price
3rd degree price discrimination - divides consumers into groups
- each group gets charged a different price
- ie. movie tickets for children, adults, students, seniors
- marginal revenue should be equal for each group
- MR1 = MR2 = MC
- P1 / P2 = (1+E2) / (1+E1)
- possible where it's not profitable to sell to a certain group
intertemporal price discrimination - charging different prices at different times
- divides consumers into those who must have the good immediately and those who are willing to wait (elastic/inelastic division)
- peak-load pricing - increasing prices when marginal costs get higher due to limits in capacity (ie. electricity during summer, heating during winter)
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