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MENTAL MODEL · M4676

Price Discrimination

Price Discrimination
BusinessHigh supportMicroeconomics
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

The practice of charging different prices to different consumers for products of the same cost, with the aim of capturing more consumer surplus and increasing profits.

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A pricing strategy for revenue maximization. First-degree price discrimination (perfect price discrimination) can capture all consumer surplus, second-degree price discrimination is implemented through quantity discounts, and third-degree price discrimination is implemented through market segmentation. Understanding price discrimination helps to understand pricing models in the modern digital economy.

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Charging different prices to different buyers for products of the same cost based on their willingness to pay, to capture more consumer surplus; requires three conditions: market power, ability to segment, and difficulty of arbitrage.

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Source support: Explicit

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