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Types of Price Discrimination 

We distinguish Price discrimination in three degrees, namely;

• First-degree price discrimination – First-degree price discrimination is determined by the maximum price the customer is willing to pay. In this case, the consumer will be charged exactly the maximum amount he is ready to pay for the good or service so that there is no surplus on his end. This is condition is also called perfect price discrimination.

• Second-degree price discrimination – Second-degree price discrimination is determined on the basis of quantity demanded. Larger quantities are available at cheaper prices as they are benefitted from more discounts than smaller quantities. For example – there are often “Buy 2 Get 1 free” offers available to make the customer buy more quantities of goods. 

• Third-degree price discrimination – This is determined based on various groups like age group, sex, tourists and locals et cetera. For example – local shopkeepers tend to charge more to tourists than their native people. 

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Different Forms of Price Discrimination

There are different ways in which Price discrimination is used in the market. Some of them are:

• Target-oriented Discounts – Many businesses offer discounts to particular target groups. Like a certain amount of discount of military families, discount for ladies, etc., making the audience increase their sale
• Premium Pricing – Premium pricing is used as a way to increase the post of the product. For example, the price of a normal shirt is almost 5 times less than that of a shirt with a premium label or brand.
• Financial Aid – Financial aid is provided to college students in most universities based on their economic situation.

Many other ways in which Price discrimination can be practically used are:

• Coupons
• Retail Incentives
• Haggling/Bargaining 

Industries that Use Price Discrimination

Price Discrimination is generally used in a situation of a monopoly market. Several industries use price discrimination on a regular basis including:

• Airline Industry
• Pharmaceutical Industry
• Academic Textbook Industry

Other businesses include the entertainment industry and the consumable goods industry. 

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