What is price discrimination and what examples of it can be found in the real-world? Evaluate the welfare effect of price discrimination in terms of efficiency and equity.
Are we being exploited through price discrimination? Price discrimination is the practice of selling the same good to different customers at different prices, or of selling different units of the good to the same customers at different prices (“Microeconomics, the firm and the market economy”, Mike Rosser, p.142). It has an impact on society as a whole, which can be labelled the welfare effect. The big dilemma our societies are faced with is the trade-off between efficiency and equity. Efficiency in consumption means allocating goods between consumers so that it would not be possible by any reallocation to make some people better off without making anybody else worse off (Oxford dictionary of economics). Equity as fairness has several possible meanings, not always consistent. Sometimes it means equality; sometimes that differences in deserts should be followed by differences in rewards; and sometimes that expectations should not be disappointed (Oxford dictionary of economics). What is price discrimination and where does it exist? What impact does it have on efficiency and equity? To answer these questions firstly we’ll see the different types of price discrimination and some examples, then we’ll study the positives and negatives it has on efficiency and equity.
In this first part we’re going to analyse the three degrees of price discrimination, then we’ll see real-life examples of price discrimination.
The first degree of price discrimination is perfect price discrimination.