Price discrimination

Price discrimination is the practice of selling the same good or service at different prices to different people, based on how much one thinks they can afford. In doing this, sellers attempt to capture additional profit from buyers who are willing to pay more. There are three degrees of price discrimination, ranked by effectiveness at capturing the consumer surplus for the producer. First-degree price discrimination targets individuals by pricing the commodity at how much they value it (i.e. on their demand curve). Second-degree price discrimination offers the good in varying quantities, with a different per-unit price depending on how much is bought (for example, by offering an "economy size"). Third-degree price discrimination divides the consumers into groups (such as students or the elderly) and offers different groups different prices. While price discrimination is typically thought of as exploitative of consumers, second- and third-degree price discrimination can make the good more affordable in some cases, thus contributing to some consumers' welfare.