One pricing strategy for firms with market power is price discrimination. While this term sounds rather ominous and almost illegal, price discrimination is both legal and ethical. Price discrimination exists when a firm offers the same product to different customers at different prices. There are three types or levels of price discrimination:
- First Degree: ExampleA buyer negotiates the price when buying a new car or a house
- Second Degree: ExampleBuy one/get one free
- Third Degree: ExampleDiscounted prices offered to a group, such as AAA members or Sams Wholesale Club
In your original post, answer the following:
- Examine where you currently work or have worked in the past. What conditions exist for price discrimination?
- Consider where and how you shop. Give one example of each type of price discrimination you have experienced.
- Consider online auction sites such as eBay. Do such sites make it easier or harder for traditional retailers and wholesalers to engage in profitable price discrimination?
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