Refers to charging different customers different prices for what is essentially the same product.
Personalised pricing. Also referred to as “pricing down the demand curve”..
Perfect price discrimination. The business charges the maximum possible price for each unit sold. The firm captures all consumer surplus.
Product versioning or menu pricing.
Typically means a producer charging different amounts for different quantities, can also include e.g. premium/budget options.
In extreme cases, buyers can create/personalise their own products.
The risk is that consumers pick your cheaper options even though they might be willing to buy the more expensive.
Bundling is another example.
Versioning is often used to provide a free tier to help build networks when the Network Effect is needed.
Group pricing.
Consumers are assigned to a different group and charged a specific price, e.g. child, adult, senior tickets. It’s necessary that purchases cannot be transferred to avoid arbitrage.
First-degree and third-degree are generally disliked by consumers, if first-degree pricing is used, consumers want to know what data was used to determine this.
EU data protection laws means you must inform users what you use their data for, including for pricing.
Q: What is first-degree price discrimination? A: Perfect price discrimination, the business charges the maximum possible to each customer, capturing all consumer surplus. “Pricing down the demand curve”.
Q: What is second-degree price discrimination? A: Product versioning or menu pricing, meaning that the customer picks depending on the value they assign to each tier.
Q: What is third-degree price discrimination? A: Group pricing - consumers are assigned to different groups (e.g. child, adult, senior).
Q: What are the requirements for price discrimination? A: