What is price discrimination?

Price discrimination is where firms charge a different price to different consumers for the same good for reasons other than cost. There are three degrees. First degree PD is where the seller knows the demand curve of each individual consumer, and charges the highest price they can based on it (e.g. live auctions, ebay). Second degree PD is where the seller charges different prices depending on the quantity of the good purchased. Third degree PD is where the seller splits consumers into groups based on their price elasticities of demand and charges different prices accordingly (e.g. night clubs, cinemas).

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