Price Discrimination | A-Level Economics Notes
These revision notes cover everything you need to know about Price Discrimination for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.
What is price discrimination?
Price discrimination is when firms charge different prices to different customers for the same good or service. For example,
- student discounts e.g. cinema/ Apple products/ Amazon Prime
- peak vs off-peak rail travel
What is first degree price discrimination?
First degree price discrimination is when firms charge each customer the maximum price that they are willing to pay.
This would require firms to read the mind of every customer, which is not possible.
There would be no consumer surplus left in the market, and this would all be turned into producer surplus.
What are the conditions necessary for third degree price discrimination?
For 3rd degree price discrimination to be possible,
- firms must have monopoly power (price-setting power).
- firms must be able to split customers into two or more groups, and each of the customer groups must have a different PED for the good/service.
- firms must be able to prevent seepage between the two markets.