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What is it?
Price discrimination occurs when a firm sells
the same product in different markets with
differing elasticities (PED) at different prices
Used by a firm with monopoly power in order
to reduce consumer surplus and increase
profits…read more

Slide 3

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The Three Levels
First degree price discrimination:
Get consumers to say the price that they are
willing to buy ­ eg. eBay, auctions
Second degree price discrimination:
Sales of different quantities of a good at different
prices to consumers ­ eg. Firms can bulk buy
Third degree price discrimination:
Sale of identical products at different prices to
different groups of consumers
This Power Point will focus mainly on 3rd
Degree…read more

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Conditions
Price discrimination will be successful under
four conditions:
High barriers to entry into the market
The firm must have a degree of monopoly power
Must be at least 2 different markets with differing
price elasticities of demand (PED)
Market can be kept separate at a low cost…read more

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Ways price can be
discriminated
Time: peak and off peak pricing
Age: lower fares for elderly, children, students
Location: much cheaper in the north of
England
Income: people on a lower income can get
concessions…read more

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The graph
The firm splits the market into elastic and
inelastic demand
They sell the output at different prices to the
two markets and keeping them separate…read more

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