What is Price Discrimination

Discrimination in simple words refers to treating different individuals or groups of people differently. In the same way in economics, price discrimination refers to charging different prices from different individual or groups of people for the same goods or services. Price discrimination can be done in monopoly where the seller of goods has the power of deciding the price of good or service.

Price discrimination is of three types, in the first type of price discrimination the monopolist charges customers according to their willingness to pay for a particular good. This type of price discrimination we see daily in our lives when the price of goods are not fixed and there is scope of bargaining then different individual bargain differently and therefore buy the same good at different prices.

In the second type of price discrimination the seller of good or service will charge according to the quantity you have purchased from the seller, therefore charging less from those who buy goods in large or bulk quantities and more from those who buy goods in less quantity from the seller. This type of price discrimination is often seen when big companies buy raw materials from the suppliers.

In the third type of price discrimination the seller of goods or services charges different prices to different groups of people. For example banks give higher rates of interest to senior citizens on fixed deposits made by them as compared to young people. Similarly in movie theaters or when you are travelling there are no tickets for children below 5 years of age which is again an example of price discrimination.

As one can see that price discrimination is a very important concept to know if one is a seller of goods or services as it is applicable almost everywhere in the world, and every individual goes through price discrimination in one form or another during his or her lifetime.

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