Economics Price Discrimination Questions Long
Second-degree price discrimination, also known as quantity discrimination, occurs when a seller charges different prices based on the quantity of goods or services purchased. This type of price discrimination is commonly observed in various real-world markets. Here are some examples:
1. Bulk Discounts: Many retailers offer lower prices per unit when customers purchase larger quantities. For instance, a grocery store may sell a single can of soda for $1, but offer a discounted price of $0.80 per can if a customer buys a pack of 12. This encourages customers to buy in bulk, benefiting both the retailer and the consumer.
2. Subscription Pricing: Streaming platforms like Netflix or Spotify often employ second-degree price discrimination by offering different subscription plans based on usage levels. They may provide a basic plan with limited features at a lower price, a standard plan with more features at a slightly higher price, and a premium plan with additional benefits at the highest price. This allows customers to choose the plan that best suits their needs and willingness to pay.
3. Airline Ticket Pricing: Airlines frequently practice second-degree price discrimination by offering different fare classes based on factors such as flexibility, baggage allowance, and seat selection. For example, a business class ticket may be priced higher than an economy class ticket, as it offers additional amenities and flexibility. This allows airlines to cater to different customer segments with varying preferences and budgets.
4. Electricity Pricing: Many utility companies charge different rates for electricity consumption based on usage levels. They often implement tiered pricing structures, where the price per unit of electricity increases as consumption levels rise. This encourages consumers to be more mindful of their energy usage and promotes conservation.
5. Movie Theater Pricing: Movie theaters often offer discounted ticket prices for matinee showings or during weekdays compared to prime-time showings on weekends. This allows theaters to attract customers during less busy periods and maximize revenue during peak times.
6. Software Licensing: Software companies frequently employ second-degree price discrimination by offering different licensing options based on usage levels or features. They may provide a basic version of the software at a lower price, a standard version with additional features at a higher price, and an enterprise version with advanced functionalities at the highest price. This allows customers to choose the version that aligns with their requirements and budget.
These examples illustrate how second-degree price discrimination is prevalent in various markets, allowing sellers to capture additional consumer surplus and tailor their offerings to different customer segments.