Price Discrimination: Definition, Types & Examples

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  • 0:02 What Is Price Discrimination?
  • 0:25 Types of Price Discrimination
  • 1:58 Examples of Price…
  • 3:05 Lesson Summary
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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.

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