Price Discrimination
Introduced| English | Meaning |
|---|---|
| price discrimination/praɪs dɪˌskrɪmɪˈneɪʃn/ | Charging different buyers different prices for the same product for reasons not explained by corresponding differences in cost. |
| market power/ˈmɑːkɪt ˈpaʊə/ | The ability of a seller or buyer to influence market prices or trading conditions. |
| willingness to pay/ˈwɪlɪŋnəs tə peɪ/ | The maximum amount a buyer would give up to obtain a specified unit of a good or service. |
| resale/ˈriːseɪl/ | Selling again an item that has already been purchased. |
| perfect price discrimination/ˈpɜːfekt praɪs dɪˌskrɪmɪˈneɪʃn/ | Charging each buyer their maximum willingness to pay for each unit, rather than a single price for all units. |
| first-degree/fɜːst dɪˈɡriː/ | Describing perfect price discrimination, in which each unit is sold at the buyer's maximum willingness to pay. |
| allocatively efficient/ˈæləkətɪvli ɪˈfɪʃənt/ | Describing an output level where marginal social benefit equals marginal social cost, so resources are directed to their most valued uses. |
| consumer surplus/kənˈsuːmə ˈsɜːpləs/ | The difference between what buyers are willing to pay and what they actually pay, summed across purchases. |
| producer surplus/prəˈdjuːsə ˈsɜːpləs/ | The amount sellers receive above the minimum they would accept for the units sold; in the standard supply model, revenue minus variable cost. |
Same seat, different prices
- The person next to you on the plane may have paid half what you did.
- Students, seniors, and early bookers all get their own price.
- This is no accident — it is a deliberate strategy to squeeze out more profit.
- It is called price discrimination 价格歧视.
Price discrimination means:
It bases each buyer's price on their willingness to pay.
Three conditions
- The firm needs market power 市场势力 — it must be a price maker.
- It must sort buyers by their willingness to pay 支付意愿.
- It must prevent resale 转售, so cheap buyers cannot resell to expensive ones.
- Miss any one condition and price discrimination falls apart.
Can the firm price-discriminate?
Price discrimination needs market power, sortable buyers, and no resale. If any condition fails, one price must be charged.
Select all conditions needed for price discrimination.
Market power, sortable buyers, and no resale — perfect competition rules it out.
If buyers can freely resell the good to one another, price discrimination breaks down.
Cheap buyers would resell to expensive ones, undercutting the firm's scheme.
Perfect price discrimination
- In perfect price discrimination 完全价格歧视 (also first-degree 一级), the firm charges each buyer their exact maximum willingness to pay.
- Now no price cut on earlier units is needed, so the demand curve becomes the marginal-revenue curve.
- The firm keeps selling until $P = MC$ — the allocatively efficient 配置有效率 quantity, with no deadweight loss.
Demand is P = 100 − Q and MC = 20. A perfect price discriminator sells until P = MC. What quantity does it produce?
Set 100 − Q = 20 → Q = 80 — the efficient quantity, double the single-price monopoly's 40.
Because it produces where P = MC, perfect price discrimination has no ______ loss.
It reaches the allocatively efficient quantity — the same as perfect competition.
Who gets the surplus
- The efficiency is real, but the welfare split is brutal.
- All consumer surplus 消费者剩余 is captured by the firm.
- Producer surplus 生产者剩余 swells to include the entire gains-from-trade triangle.
Under perfect price discrimination, consumer surplus is:
The firm charges each buyer their maximum willingness to pay, so no consumer surplus is left.
Price discrimination charges different buyers different prices; it needs market power, sortable willingness to pay, and no resale. Perfect price discrimination reaches the efficient $P = MC$ quantity with no deadweight loss — but the firm captures all the consumer surplus.