Price discrimination is a marketing strategy based on charging different prices for the same product, despite the fact that the cost of production is always the same. This technique is common and occurs normally in situations of monopoly, in which a company controls the market and seeks to maximize profits in this way.
Types of price discrimination.
Price discrimination is classified into three types, first degree, second and third degree. These are the characteristics of each of these three strategies.
First degree price discrimination
First-degree price discrimination occurs when the business knows exactly how much each individual is willing to pay, and sells its product or service at the maximum price that each customer is willing to pay. Price discrimination of the first degree is typical of corporate monopolies. It is often said that this is the perfect discrimination since it allows to obtain the maximum profitability for the company.
Second degree price discrimination
Second-degree price discrimination occurs when the market is grouped based on its willingness to pay for the product in question, charging a different price to each group based on that provision. This causes theunit price of the product decreases as the volume of purchase increases. This strategy is very common in high volume sales, as well as in products that are sold bundled or in a pack.
Third degree price discrimination
Third-degree price discrimination occurs when a linear price is charged for each group of consumers, that is, different prices are charged for the same product depending on the market type. It is one of the most used techniques within the pricing policies of many companies. Not just monopolies.