What is price discrimination?

Price discrimination refers to the practice of charging different prices for the same product or service to different customers. This practice is based on the willingness or ability of customers to pay, rather than on differences in cost or production.

The concept of price discrimination can be beneficial for businesses as it allows them to maximize profits by capturing consumer surplus. For example, a company might charge higher prices to customers who are less price-sensitive (such as those in a high-income bracket) and lower prices to those who are more price-sensitive (like students or price-conscious consumers).

In contrast, simply charging different prices based on the cost of production, setting the same price for all consumers, or only offering discounts to bulk buyers do not encompass the broader strategy of price discrimination. These alternatives do not consider variations in consumers’ willingness to pay, which is the fundamental aspect of price discrimination.