Third Degree Price Discrimination OCR

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  • Price Discrimination (Third Degree)
    • Definition
      • When a firm charges different prices to different groups of consumers for an identical good/service, for reasons not associated with cost
    • Conditions of discriminatory Pricing
      • It is possible to group consumers in some way
      • Each group has a different price elasticity
      • The firm must be able to prevent market seepage or 'consumer switching' - when consumers can buy a product at the lower price and sell it on the consumers who would have paid the much higher price
    • Leisure Travel
      • OAP and students discounts on trains, buses and other public transport
      • Peak and off-peak pricing
    • Holidays
      • Rooms are deliberately described as family rooms, double rooms etc to appeal to different consumers with different budgets
    • Spectator Sports
      • Children can often get cheaper tickets e.g. at T20 cricket matches children often get in the ground for £5
      • Family deals on tickets that are cheaper than buying four individual tickets
    • Cinema
      • Prices are different according to age
    • Making Profit
      • Price discrimination allows the firm to hopefully both maximise profit and sales as having different prices allows consumers to enter the market who otherwise wouldn't have been able to because the good was previously unaffordable
  • Theory
  • Applied to the Key Industries

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