Thread by @FinFloww

Companies practice price discrimination to maximise their profits. Let’s dive deep into Price Discrimination in a thread 🧵

Price discrimination is a practice of charging different prices from different consumers to maximise their profits and capture the entire consumer surplus.

Consumer Surplus is the entire difference between what a consumer is willing to pay and what he actually paid. It’s the total benefit to the consumer when the price that he’s paying is way lesser than the one he’s willing to pay.

Suppose a consumer is willing to pay Rs.20 or Rs.15 for a small packet of Lays, but he’s getting it for Rs.10. So, it’s an overall benefit to the consumer.

But the producers always try to capture that consumer surplus by charging a higher price so that they can generate more profits from the same product.

Having market power is a necessary condition to exercise price discrimination.

Now there are three types of price discrimination:

●First-Degree Price Discrimination- Practice of charging every customer the max. price they are willing to pay.

●Second-Degree Price Discrimination- Practice of charging different prices for different quantities of the same goods & services.

●Third-Degree Price Discrimination- Practice of dividing the customers into different groups on various bases and charging them accordingly.

Profit maximization is not the only reason for this practice.

▪Companies which provide premium products use price discrimination to enhance/improve the user experience.

▪It opens up the market for lower-income users.

▪It improves the cash flow of the companies.

Following are the examples of price discrimination in daily life 💁🏻‍♂️

Professionals like Doctors, Architects, Accountants etc. charge their customers according to their income. High-income customers are charged a higher fee.

Companies like Amazon and Walmart provide quantity discounts to the customer. Customers have to pay a higher price for a smaller quantity than the larger quantity.

University students can avail discounts on iPad and MacBooks, provided by Apple.

Tableau is a data visualisation software that is free for students for 1 year.

Buses charge less from the students and the senior citizens.

Companies provide their products at different prices for different periods.

• Spotify charges Rs.129 for 1 month and Rs.1189 for 12 months(savings of Rs. 359)

• Trendlyne App charges Rs. 215 for 1 month and Rs. 2150 for 12 months( savings of Rs. 430)

YouTube and Netflix charge for their premium plans for a higher quality of video and audio or better ad-free experience.

Airlines like Vistara, Air India, Etihad, etc. charge different prices for the economy and Business class in Air travel. They also charge a higher price for the last-minute booking than a month prior booking for the same seats.

Publishing both hardbound and paperback editions of a book also helps publishers to price discriminate.

Nescafe provides coffee in different packaging and different variants like Nescafe classic and Nescafe gold.

Similarly, Taj Mahal and Red label are offered by Brooke Bond as different variants in the tea leaves industry.

Movie theatres like PVR and Cineplex also charge a different price for the same movie, depending upon the rows and the days.

Indian Railways charges more for AC first tier or second tier than the third tier or the non AC compartments for reaching the same destination.

If you liked this thread and found it informative then RT🔁 the first tweet and follow @FinFloww for more.

Join our discord community. Link in bio.