Copyright

Price Discrimination: Definition, Types & Examples

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Price Elasticity of Demand: Definition, Formula & Example

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:02 What Is Price Discrimination?
  • 0:25 Types of Price Discrimination
  • 1:58 Examples of Price…
  • 3:05 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Timeline
Autoplay
Autoplay
Speed Speed

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Tara Schofield

Tara has a PhD in Marketing & Management

This lesson defines types of price discrimination. We'll use several scenarios to explore the use of price discrimination in the real world.

What Is Price Discrimination?

Price discrimination is the practice of offering the same product to different customers at different prices. It is a very common practice that is exercised by most businesses, often on a regular basis. While the name sounds like an illegal practice or may conjure a negative image, the reality is price discrimination is exercised in a legal and ethical way by most companies.

Types of Price Discrimination

There are three types, or degrees, of price discrimination:

The first degree of price discrimination is charging the price that consumers are willing to pay. This may be in the form of negotiation or offering specials for individuals who have been loyal customers or repeat shoppers. If you are in the market for a new or used car, you will encounter the first degree of price discrimination when you go to negotiate the purchase price. The better you are at negotiating, the bigger the discount you will likely be offered.

The second degree focuses on discounts based on established terms. If you go to the store and purchase three cans of soup and receive the fourth free, you have experienced the second degree of price discrimination. Another aspect of the second degree of price discrimination is offering premium packages for a discounted price. If you buy a premium snack package at the movie theater that includes a large popcorn, large drink, and box of candy, they may take $1 off the price. You can choose to buy the package or not, but if you buy only a large popcorn and drink, the movie theater will charge you the full price.

The third degree of price discrimination is offering discounts to members of an organization or people who belong to a general group. How often have you been asked if you are a member of AAA or AARP? These are two organizations that are widely known to have discounts negotiated for their members. Hopefully you aren't asked if you qualify for the senior discount, but if you are, you know that being over 55 or 60 usually gives you automatic membership in the seniors discount group, which means special discounts on prices.

Examples of Price Discrimination

Let's look at a few more examples to help understand the varying degrees of price discrimination.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support