Price Discrimination

Price discrimination is a pricing strategy where a firm charges different prices for the same product or service in different markets or to different customers. The aim of price discrimination is to maximize profits by charging higher prices to customers who are willing to pay more and lower prices to customers who are more price-sensitive.

Different Types of Price Discrimination:

1. First-Degree Price Discrimination:
In this type of price discrimination, the firm charges different prices for each unit of the product sold, based on the customer's willingness to pay. This type of price discrimination is also called 'perfect price discrimination.'

2. Second-Degree Price Discrimination:
In this type of price discrimination, the firm charges different prices based on the quantity of the product purchased. For example, bulk discounts or quantity discounts.

3. Third-Degree Price Discrimination:
In this type of price discrimination, the firm charges different prices in different markets based on the customer's willingness to pay. For example, charging higher prices in the premium market and lower prices in the discount market.

Explanation of the Correct Answer:

The correct answer to the given question is option 'C,' i.e., Charging different prices in different markets for a product. This is because price discrimination involves charging different prices in different markets for the same product or service. The firm identifies different markets with different price elasticities of demand and then charges a higher price to the market with a lower price elasticity of demand and vice versa.

For example, an airline may charge different prices for tickets sold in different regions, depending on the demand for the tickets in each region. The airline may charge a higher price for tickets sold in a region where there is high demand and a lower price for tickets sold in a region where there is low demand.

Conclusion:

Price discrimination is a common strategy used by firms to maximize profits. By charging different prices to different customers in different markets, firms can increase their profits and capture more of the consumer surplus. However, price discrimination can be considered anti-competitive behavior, and it is often regulated by governments to protect consumers.