Feb 06 2009

Price Discrimination 101

YOUmoz | Price Discrimination in Pay Per Click AdvertisingSingle price vs. price discriminating monopolist

The article above gives a great introduction to and several examples of price discrimination among firms with market power. Read the excerpt below then discuss the questions that follow in your comments:

For any product or service, different people have different prices they are willing to pay. If you ever took an Economics course you surely remember the downward sloping demand curve, which is a graphical way of saying that you’ll get more buyers at a low price and fewer buyers at a high price. For a business that cannot price discriminate, this poses a problem. What price to offer?

There might be some consumers willing to pay 80, but twice as many consumers willing to pay 50. If you set the price at 50, you get more revenue, but the people who are willing to pay 80 are happy that your offering was 30 less than they were willing to pay. (Economists call this consumer surplus.) The ideal situation for the business would be to sell to some consumers at 80 and others (the price sensitive ones) at 50. Price discrimination – charging each consumer close to what he or she is willing to pay – increases revenue for the business.

Business strategists are forever trying to figure out ways to price discriminate. For commodities it can be difficult, but some markets are conducive to price discrimination. The classic example is the airline industry. Travelers have different itineraries and routes, and the airlines purposely impose complex pricing rules (e.g. cheaper if you stay over a Saturday) in order to price discriminate. Business travelers typically end up paying more than leisure travelers, and if you fly into or out of a small city you pay more than between large cities. On a flight with 100 passengers, it is possible that everyone paid a different price for the seat – 100 different prices for the same product. Consumers often resent these schemes, but economists love them.

Movie theaters price discriminate by charging lower admission for kids and seniors. Everyone gets the same product – a seat in the theater – but consumers that are more price sensitive pay less. Car dealers discriminate based on how much the customer haggles. Sellers of new products, especially consumer electronics, often price discriminate over time. When the iPhone was first released, consumers willing to pay $600 got to buy it. A couple months later, Apple lowered the price and a larger segment of the public was willing to buy. Apple could have charged $400 from the beginning, but then they would have lost all that revenue from the people willing to pay $600.

Buyers often feel like they are being played for chumps when they learn about price discrimination, but many economists absolutely are crazy about it and wish we had more price discrimination. Businesses are encouraged to make prices secret – create a fog of uncertainty – to get customers to accept prices offered to them. Preston McAfee, an economics professor at the California Institute of Technology, gave a talk about prices. He raves about Dell selling the same computer at different prices based on how the consumer identifies themselves at the website (small business, large business, home users).

Discussion Questions:

  1. Who suffers as a result of price discrimination?
  2. Who benefits from price discrimination and how do they gain?
  3. Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author


53 responses so far

53 Responses to “Price Discrimination 101”

  1. optional.xuon 15 Nov 2007 at 10:48 pm

    Obviously the consumer suffers as a result of price discrimination.

    The firm gains from price discrimination in that they increase revenues such that MR = MC again. They are able to maximize on how much any given person is willing to pay and thus pretty much maximize their profit.

    Society as a whole is better off when a monopolist can price discriminate as what would have been a dead weight loss is converted into the "producer surplus" or economic profit. However, consumers do lose out on any consumer benefit and thats probably not good for society as a whole.

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  2. Jessica Ngon 18 Nov 2007 at 7:20 pm

    The consumer suffers with price discrimination as their consumer surplus is basically changed into revenue for the firms.

    On the other hand, the firm gains from this as they make a lot more economic profit, as they "exploit" the consumer surplus, and by making consumers pay at 0 consumer plus, turns that into their own economic profit through maximizing their

    However, it is a bit ironic that at the end, the society as a whole benefits from price discrimination, because now that MR=D=AR=P, deadweight losses are eliminated compared to a single-price monopolist, which as a whole results in allocative efficiency.

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  3. Soyeon Yoonon 19 Nov 2007 at 1:05 am

    As a result of price discrimination, the people who are willing to pay are the biggest sufferer because they have to pay a lot more than the standardized price. It is usually the firms who gain from price discrimination, and they gain more revenue/profits from making people to pay close to their maximum willingness to pay. It is good for both the firms and the society to price discriminate because there is allocative efficiency and the firms can have more profits.

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  4. Christina Huon 19 Nov 2007 at 1:54 am

    Who benefits from price discrimination and how do they gain?

    Consumers suffer from price discrimination, as their surplus is basically turned into producer surplus. Consumer surplus and the area representing dead weight loss are both turned into revenue for the producer. Society as a whole is worse off. Taking a simpler view, this is because consumers (who are worse off) make up the bulk of society, so society as a whole is disadvantaged. Taking an economic view, price discrimination means that all firms that need to use the monopolist's products that had any surplus before discrimination will now have none, and must raise their prices to cover the increased ATC. This will shift demand for said firm's products to the left, and, society is worse off.

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  5. Dana Yeonon 19 Nov 2007 at 10:49 am

    The sufferes of price discrimination are consumers as their consumer surplus is eliminated. As a result, the whole society is worse off as it is only the firms who gain benefits, not the consumers. However, I believe price discrimination is not as bad as most people say it is because it matches our needs. Looking at it from a naive perspective, isn't it good to have special offers for students? (Apple and Mac computers at the beginning of the fall semester)

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  6. Sunny Kimon 19 Nov 2007 at 11:39 am

    As other people have already mentioned, consumers suffer from price discrimination because they lose their consumer surplus. Since consumers are paying the maximum amount they are willing to pay, there is no consumer surplus. Moreover, the suppliers are acheving benefit because they are receiving the maximum revenue. The producer surplus gets larger while the consumer surplus gets elliminated. However, in overall, the society benefits from price discrimination. This is because deadweight loss is converted to producer surplus.

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  7. Jeff Yeon 19 Nov 2007 at 5:58 pm

    With price discrimination, the consumer suffers because they have to pay more than others for the same product. Companies who price discriminate benefit from it because they are able to make consumers pay the amount that they're WILLING to pay, or at least close to it, using different strategies as explained in the article. Price discrimination benefits society because now, dead weight loss is eliminated. Also, as a student, i certainly can't complain about paying less than the average working adult.

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  8. Rebecca Sungon 19 Nov 2007 at 6:32 pm

    Price discrimination causes the consumer to suffer because their consumer surplus is eliminated. Those who benefit are the companies who price discriminate because they gain the amount that should have been consumer surplus when there was no price discrimination. This benefits society because dead weight loss is eliminated. I agree with Jeff that for a student, I don't mind having the benefit of paying less than a full price adult for a movie ticket.

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  9. mina.songon 19 Nov 2007 at 8:12 pm

    I think although consumers suffers, i don't think they really suffer because at any kinds of way, themselves will discriminate their prduct or any sort of things to sell to others. Therefore, although in one specific market where they are consumers, they will lost the consumer surplus, but in combination of markets where they are consumer and producer, I think they will gain producer surplus as much as they lost as consumer surplus.

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  10. Margaret Liuon 19 Nov 2007 at 8:50 pm

    In my opinion, the consumers who cannot afford the product or service benefit as well as the firm, however, those at the top of the income charts suffer since consumer surplus is turned into firm profits.

    Society is both worse and better off. Better because now more people can afford the prices and while it is the people who are willing to pay more who suffer the most (no consumer surplus), they are also the wealthier and therefore probably have shares in the company. If not, then they're already rich anyway. Society is worse off because now more people can consume the good and more consumption, most times UNNECESSARY consumption, will lead to more waste and speed the apocalypse of our existence.

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  11. serenatuon 19 Nov 2007 at 10:03 pm

    1. It's clear that the consumers suffer from the price discrimination, because now that all the original consumer surplus are all gone.

    2. The monopoly firm benefits from the price discrimination, now that they are able to sell the products at different prices so it converts all the consumer surplus to producer surplus. 3. I think it's better to the society as a whole even when the consumer surplus are being taken away, because now that the lower income families will be able to get the things they need at the price they are able to offer, and as for the richer ones, it doesn't really matter to them, because they have the ability to pay at a higher prices than others.

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  12. calvinluon 19 Nov 2007 at 11:07 pm

    No doubt the consumer suffers from price discrimination, or at least relatively, especially those who is willing to pay higher than the list price in a single price economy, now they have to pay more than those who isn’t willing to pay as much for the same product, and of course those who tries to cheat will be shock and may paralyze under the rule Welker the evil monopolist. The monopolist benefits from price discrimination as turn consumer surplus into economic profit, thus the monopolist end up earning more money. But the society as a whole benefits from price discrimination as all resource are efficiently allocated, eliminating dead weight lost in a single priced monopoly.

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  13. Jeewon Ohon 19 Nov 2007 at 11:46 pm

    Cosumers suffer from price discrimination, because what they pay becomes producer surplus. The firms benefit from it though, as they are able to charge different prices for different consumers according to how much each are willing to pay, eventually yielding greater economic profits and producer surplus. I think price discrimination is good for the society, because it takes people with less income into consideration. Everyone is being charged the right price that suits their ability, and this also maximizes the producer surplus.

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  14. James Tsaoon 20 Nov 2007 at 12:23 am

    Charging the price on each consumer's maximum willingness to pay price, consumers suffer a lost because they no longer can obtain consumer surplus. In other words, the consumer surplus of every consumer is lowered to 0. Consumers who originally can not afford the product however benefits because they can now purchase the product.

    Society also benefit from price discrimination because the deadweight lost is eliminated when D=P=MR=AR.

    Producers benefit because they are charging digging into consumer surplus for additional economic profit

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  15. judychenon 20 Nov 2007 at 12:25 am

    Consumers suffer as a result of price discrimination because it turns out that they don't have any consumer surplus anymore. Producers benefits form price discrimination because now they have more total profits sacrifice consumer surplus. The society is better of when a monopolist is able to price discriminate because now MR=D=AR=P, therefore, there’s no deadweight loss, and achieve allocative efficiency where P= MC

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  16. Claire Moonon 20 Nov 2007 at 1:11 am

    The firms are the ones who are supposed to get benefits from the price discriminations, while the consumers sufferes from the price discriminations since they lose the consumer surplus because they get to pay the highest payments they are willing to pay. This is better for society because now MR=D=AR=P and that means there is no deadweight loss, and instead there is allocative efficiency.

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  17. timothysunon 20 Nov 2007 at 1:32 am

    For some reason, I always seem to support producer surplus over consumer surplus. That's probably because I think of myself more as a firm than a household. Weird.

    Anyways, I find price discrimination to be a clever idea, because this is still not really into the long run. In the long run, demand more easily changes. In the short run, demand is pretty fixed. This allows companies like Apple to engage in price discrimination.

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  18. kevinhuangon 20 Nov 2007 at 7:10 pm

    Price discrimination is a very ingeneous idea. It allows companies that otherwise could not make much economic, the ability to make economic profits. It also eliminates deadweight loss which is better for the society.

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  19. kevin maon 20 Nov 2007 at 7:26 pm

    Consumers suffer from price discrimination. They suffer from price discrimination because they do not get their consumer surplus, they pay exactly how much they're willing to pay for whatever they're getting.

    The suppliers benefit from price discrimination because they are charging as much as they can for each consumer.

    Society is better off with price discrimination. This way the suppliers are making more money and they can do new things with that money. Or when the shareholders see that they're making a lot of money, they would want more of the same projects, giving society more of the product.

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  20. Cassy Changon 20 Nov 2007 at 8:56 pm

    Just as long as consumers don't know they are being price discriminated, they wouldn't complain too much. Price discrimination takes away the consumer surplus and turns it into producer profit. I think extra satisfaction should be shared equally between producers and consumers.

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  21. Laura Perezon 09 Feb 2009 at 12:49 am

    All customers suffer as a result of price discrimination since they no longer get any consumer surplus. The customers who are less sensitive to prices suffer more, though, because they can get the same cheaper deal as those with a more elastic demand but simply do not go through the trouble (as seen with the supermarket coupons). The customers who are best off when it comes to price discrimination are the savvy ones, according to Preston McAfee, because they take the time to find out the special deals the market is making and buy the best one no matter what their income or demand elasticity is-such as finding out the best time to buy a plane ticket, and the best combination, or simply getting a discount for asking a hotel for their best rates.

    All this consumer surplus is changed into producer surplus which means more profits for the firm.

    As a whole, though, society has achieved perfect efficiency since all dead weight loss has been eliminated and is instead producer surplus. This way profits are maximised and it creates a perfect market where all customers pay exactly what they are willing to according to their elasticities and income, which should not make them worse off.

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  22. Christian Evertzon 25 Feb 2009 at 1:08 am

    In a price discriminating monopoly, the firm charges the consumer exactly the price he or she is willing to pay. As a result, the existing consumer surplus from a single-price selling monopolist disappears and is transferred to profits in a price discriminating monopoly. Clearly, consumers are worse off and the firm in that market enjoys maximum profits. However, since the firm can charge different prices for its product, its marginal revenue is equal to its demand. This means that allocative efficiency is achieved. Thus, there is no under or over-allocation of resources. When visualizing the diagram of a price discriminating monopolist, we know that the dead weight loss which existed in a single price monopoly, is eliminated. Therefore, we can conclude that society's welfare has increased. When a price discriminating monopoly is behaving in such a way, it is evident that it is not beneficial for society. Although there might be a possibility that the firm uses its profits reasonably and invests in new technology which allows the firm to lower the price of its products and produce more innovative products. It is also the case that firms who are doing well are more likely to employ new workers. If that the case this will benefit society as unemployment rate is reduced and consumers enjoy more innovative products at lower prices.

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  23. Amit Zaidenbergon 03 Mar 2009 at 3:31 am

    The consumers obviously lose as a result of price discrimination. In a perfect situation of price descrimination they recieve no consumerr surplus showing exactly how little they gain.

    The monopolistic firm benefits greatly from price discrimination. They do this by increasing their producer surplus a vast amount. They gain because they make the maximum profit they can from each product and never lose any money. Since firms are profit maximimizers the idea of price discrimination is very appealing.

    Surprisingly, as a whole society is better off when a monopoly is ably to price discriminate this is because there is no Dead Weight Loss instead everything is transferred to the firm sow hile consumers may not feel it, price discrimination is good for society. Although some consumers will feel it because although they will ave no surplus they will be able to afford the product because the prices range to a lower price as well.

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  24. Alex Hanon 03 Mar 2009 at 5:33 pm

    Due the lack of consumer surplus, consumers will suffer. And what would have been consumer surplus would become more revenue to the firm thus the firm earns more profit. Whether this is good for society is debatable. Consumers evidently have less utility as they are paying exactly what they are willing to pay. Well at least they aren't paying more than they are willing to. Also when price discrimination happens, the firms marginal revenue and price are the same. Therefore the firm will produce at the output level where p=mc. This is the socially optimal level and the firm is being allocatively efficient (which is a good thing for society.) Plus in price discrimination, there is no deadweight loss; which is also good for society. Without price discrimination, there would be a dead weight loss and the products would be under allocated. This is why I think price discrimination is neither good nor bad. The major drawback is that consumers are just less happy..

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  25. Gabrielon 03 Mar 2009 at 5:44 pm

    The definition of a price discriminating firm is a firm that charges different prices to different consumers for the same product. For this to happen three conditions have to be met; Monopoly power, no resale, and market segregation. Since consumers pay exactly what they are willing to pay, then consumer surplus is reduced to zero. The firm can therefore achieve maximum profits since the lost consumer surplus is converted to profit. The firms are clearly better off since they have more surplus shown as profit. Since they can charge different prices for the same product, then MR=P. This means that they can achieve allocative efficiency (when P=MC), something that single price monopolies can not achieve. This is one of the positive sides for society. The negative aspect is that consumer surplus is lost, thus consumers are not as happy but since it is transferred to producer surplus, society as a whole is better off. Therefore we can conclude that even though consumers are worse off, society as a whole is better off.

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  26. Daniel D'Amcoon 05 Mar 2009 at 4:59 am

    It is obvious to see that consumers are the ones suffering from price discrimination. When firms price discriminate they are charging consumers the maximum amount they are willing to pay for their product. A good example of this is airplane tickets. They start out the prices really high and when it gets closer and closer to the date of the flight they lower their prices. Basically what is happening is the consumer surplus is being taken away and changed into profits. When a consumer purchases a product at the highest price they are willing to pay their utility is still high. This is because they were perfectly happy paying for the product at that price, but in order to receive additional utility they would of had to purchase the product at a lower price then their maximum amount.

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  27. Josh Appletonon 05 Mar 2009 at 5:28 am

    This is a great example Dan, when the last few tickets are being sold the airline companies know that at this point the consumers demand will be highly inelastic to the high price. This means airline companies can very easily adjust prices based on who is willing to pay and whose demand is highest. The only way this works however is if the airline can identify the demanding consumers i.e. segregate buyers, also they must have monopolistic powers, and lastly the product cannot be resell able. In this cases society is better of as some people have been charged lower than what they were willing to pay, however in the majority of situations the consumer loses out.

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  28. Yael Burlaon 05 Mar 2009 at 6:12 am

    The definition of price discrimination is not only charging different people differnet prices for the same product, but it is also charging the consumers exactly what they are willing to pay. This results in zero consumer surplus, the extra amount of happiness that the consumers receive from buying a good, since they are paying exactly what they would for a good. Consumer surplus equals zero because it is turned into profits for the market or firm. Therefore, consumers are technically the ones who suffer.

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  29. Zac Queryon 05 Mar 2009 at 7:47 am

    I don't know if "suffers" is the right word, because in the end consumers are making a deal with the producers to purchase their product in exchange for money. Both sides agree, and both sides are comfortable with the outcome, otherwise they would not have made the deal to begin with. Price discrimination is only producers taking advantage of the consumer surplus in a market. This may seem unfair to consumers, but don't forget that they always have the option of simply not purchasing the good. As a whole society remains the same as a result of price discrimination. The only difference is producer surplus has increased, while consumer surplus has decreased accordingly. In a perfect price discrimination situation, the consumer surplus would be reduced to zero, while the producer surplus equals the total welfare. There is no dead weight loss.

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  30. Jonnyon 05 Mar 2009 at 6:42 pm

    Who suffers as a result of price discrimination?

    Nobody technically suffers from price discrimination as the consumers are willing to pay for it and the companies take advantage of the diffrent amounts people are willing to pay for a good. But people do feel good when they have a consumer surplus. Every1 likes a bargin

    Who benefits from price discrimination and how do they gain?

    The firm benefits from price discrimination because they can sell the good at people are willing to pay. This will maximize their consumer surplus, which in turn means larger revenue per product. The challange is to find out how much people are willing to pay

    Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    Firm – Better of due to new producer surplus and revenue from the goods

    Consumer – Happy but has lost its consumer surplus which we all love

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  31. Felipe R-Lopezon 09 Dec 2009 at 11:24 pm

    1.Who suffers as a result of price discrimination?

    Price discrimination causes total consumer surplus to decrease, and from this, it is obvious that consumers are the ones who would suffer from price discrimination.

    2.Who benefits from price discrimination and how do they gain?

    Firms are the ones that gain from price discrimination. Firms wish to sell their products at the most profit-maximizing price, i.e. the maximum price the consumer would like to pay. Taking into cosideration different people, who might want to pay different prices, firms discriminate among consumers, and the ones who are willing to pay more end up paying that amount. The movie tickets is a great example that everyone can relate to. Museums, with special prices for infants and university students, who can't afford an expensive ticket, are another example.

    3.Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    In terms of total surplus, society is worse off. Society would be best off where price equals marginal cost, but in the case of price discrimination, on the graph, price no longer equals marginal cost, and this creates what is called the dead weight loss, which represents the loss of total surplus to society.

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  32. Jasonon 10 Dec 2009 at 1:15 am

    Who suffers as a result of price discrimination?

    The consumers suffer as a result of price discrimination, because they are forced to pay at a higher price than they would have to normally, and the overall consumer surplus drastically decreases.

    Who benefits from price discrimination and how do they gain?

    The firms benefit from price discrimination, because they can receive more money when they charge more to people who are willing to pay more. When consumers are price-sensitive, the firms charge less to ensure that they are willing to buy it, but for consumers that are not price-sensitive, they can charge a higher price, making the most money and getting the most customers.

    Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    The total surplus of the society is lower, because a dead-weight-loss appears, and though producer surplus increases as consumer surplus decreases, it doesn't entirely make up for it.

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  33. Mhairion 11 Dec 2009 at 4:56 am

    The consumer suffers from price discrimination and it is the firm who benefits as they sell their product at the maximum price that consumers are willing to pay in order to gain economic profits. The society is not exactly worse off, as the consumers are still paying what they are willing to for a product and the amount of dead weight loss has drastically declined compared to a single price monopoly.

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  34. Gavin Steinhublon 11 Dec 2009 at 4:57 am

    #1

    Price discrimination hurts the consumer, because it decreases overall consumer surplus. Somebody above me mentioned that it hurts those who have to pay greater amounts more. However, because the consumer is willing to pay that price, or else they would not get it, it effects them the same as a consumer only willing to pay the lower price. So it affects every consumer equally, and just decreases consumer surplus

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  35. Thomason 11 Dec 2009 at 4:41 pm

    Since price discrimination causes the consumers surplus to decrease it is the consumer that suffers.

    The firms gain from price discrimination because they are able to sell to a lot more people because they can change the price.

    Because price discrimination causes dead weight loss society is worse off, because price is not MR=MC

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  36. Johnon 11 Dec 2009 at 4:59 pm

    The people who suffer as a result of price discrimination are the individuals who are willing to pay a higher price than others. Also in the case of movie theatre tickets, and ski passes adults suffer more than kids because often times they are charged a higher price. The firm gains from price discrimination and the consumer paying a higher price suffers because. Society does not gain from discrimination because price discrimination causes dead weight loss.

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  37. Gelando Makrideson 11 Dec 2009 at 5:47 pm

    The consumer suffers a result of price discrimination which is shown on a diagram as a reduced consumer surplus. the producers, on the other hand, exhibit an increased surplus and maximized profits. Society does benefit from a monopolist's price discrimination because as a result of the dead weight loss caused there is surplus lost.

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  38. Gelando Makrideson 11 Dec 2009 at 5:48 pm

    i mean society does NOT benefit. duh right.

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  39. Drew B Von 13 Dec 2009 at 9:46 pm

    If a firm would succeed in perfectly price discriminating, where each consumer will pay the maximum price he would be willing to pay, there would be absolutely no more consumer surplus. This would be very beneficial to the firm. As shown in the graph, the area that without price discrimination would be consumer surplus now is economic profit of the firm.

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  40. Koen Voskuilon 14 Jan 2010 at 8:14 pm

    1. Consumers suffer from price discrimination because they have to pay a higher price than they normally would so their utility or consumer surplus is low.

    2. The firm benefits from price discrimination. Some consumers are less price sensitive than others and thus the firm is able to charge a higher price for those consumers. This way the firm can get more revenues from the high paying consumer. On the other hand, if consumers are price sensitive then, firms can lower their prices to make it seem cheap to buy the good or service. This way the firm still gets revenue from the price sensitive consumers.

    3. I believe that society is better off in with a price discriminating monopoly. A lower income family will still be able to get the good they are wanting for a lower price. If the price were set then the family wouldn’t be able to get it. Rich people on the other hand, it doesn’t matter to them because they will pay at whatever price they need to pay, and they are still capable of paying.

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  41. Noraon 15 Jan 2010 at 6:18 pm

    1. Consumers suffer from price discrimination because they pay different prices for the same good or service. This eliminates consumer surplus, making consumers in general unhappy.

    2. The firm benefits from price discrimination because they can charge each consumer what they are willing to pay. With price discrimination, producers can erase most of the consumer surplus since consumers willing to pay a high price, in fact do pay that high price, yet consumers only willing to pay a lower price are also buying the good or service, at the price they are able to purchase.

    3. In price discrimination, the firm is producing where price equals marginal revenue, meaning that it is producing at allocative efficiency. Since consumers are paying the price they are willing to pay, all of the good or service will be sold, meaning there is no shortage or surplus. Overall, this is good for society. However, the individual consumers who, without price discrimination, would be able to purchase the product for less than they are willing, are unhappy.

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  42. Hannaon 16 Jan 2010 at 11:00 pm

    1. Who suffers as a result of price discrimination?

    The consumers are the ones who suffer from price discrimination because they are charged different prices even though the goods or services are the same. This reduces consumer surplus.

    2. Who benefits from price discrimination and how do they gain?

    The firms are the ones who benefit from price discrimination, because they are able to charge a higher price to people who are willing to pay a higher price. If the consumer is price-sensitive, then the firm lowers the price for that particular consumer. This is beneficial because the producer does not have to lower the price for all consumers, meaning that the producer can charge more to people who are willing to pay more, thus making more profit.

    3. Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    Society as a whole is better off when a monopolist is able to price discriminate because the consumers who are willing to pay more for a product do not mind doing so. Also, the consumers who are more price-sensitive are able to purchase the same good for a lower price. The optimal situation for society would be when price equals marginal cost, but with price discrimination the price does not equal marginal cost, which creates dead weight loss, representing the loss of total welfare for society.

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  43. Duy Anhon 18 Jan 2010 at 12:34 am

    1. Who suffers as a result of price discrimination?

    Consumers that are willing to pay more for a product often suffer as a result of price discrimination. They are willing to pay 110 for a product, but then they found out that other people can get it only at 90. Ther will be consumer surplus, either you pay more, or just at right price.

    2. Who benefits from price discrimination and how do they gain?

    Firms are those who benefit the most from price discrimination. They gain by not letting the consumers have consumer surplus, but instead, they charge it at first at a higher price, to get the revenue from those who are willing to pay higher, who have more surpluses. Then, they charge it at lower price so that the other customers who are willing to pay less can also get the product, and with that they increased the number of consumers, therefore they get higher revenue.

    3. Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    Society as a whole is better off, because both parties get what they wanted, and they are satisfied with that. Price discrimination allows firms to charge different prices with different types of consumers: the ones that are willing to pay more, and the ones that are more price-sensitive. They both get the product at a satisfactory level, while the firms get all the revenue and firms are happy with that.

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  44. Sarah Ebleon 18 Jan 2010 at 3:27 am

    1.Who suffers as a result of price discrimination?

    Consumers.

    2.Who benefits from price discrimination and how do they gain?

    Producers benefit from price discrimination. They gain by first charging a higher price and therefore get the revenue of the people who were willing to pay the high price. Then they lower their price so they also make the revenue of the people that are willing to only pay a lower price. By this, producers earn more revenue.

    3.Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    Society as a whole is better off because the producers earned more revenue which makes them happy and consumers got the product they wanted at the price they were willing to pay so they are also happy.

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  45. Christophon 13 Dec 2010 at 2:54 am

    As consumers have to pay higher prices and their consumer surplus shrinks, they suffer from price discriminations.

    Firms will benefit from price discriminations. They are able to charge higher prices for their products depending on the consumer’s price sensitivity. If consumers are willing to pay for a product, even though the price is higher, firms will make greater profits.

    Even though consumers have to pay a higher price, society is better off as a whole. Price discriminations decreased the dead weight loss and the firm’s economic profit became greater. The decrease in consumer surplus is not as dominant as the firm’s profits and the minimized dead weight loss.

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  46. Alain Meyeron 13 Dec 2010 at 2:19 am

    1. Who suffers as a result of price discrimination?

    It is the consumer who "suffers" as a result of price discrimination. The whole concept of PD means lowering consumer surplus by maximizing producer surplus in every consumer.

    2. Who benefits from price discrimination and how do they gain?

    Producers benefit from price discrimination by charging the highest possible price that a certain consumer will pay for the same product. Different people have different consumer surpluses and rather than providing a fixed price, producers aim to increase their surplus by raising prices depending on who they're selling to.

    3. Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    Society is better off as a whole because price discrimination decreases dead-weight loss. It does so by charging people within their realm of happiness and gets the firm closer to allocative efficiency by not having a surplus or shortage.

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  47. Pilar Mulleron 13 Dec 2010 at 2:14 pm

    Who suffers as a result of price discrimination?

    The consumers are the ones who suffer from price discrimination, since their consumer surplus gets eliminated through price discrimination.

    Who benefits from price discrimination and how do they gain?

    The ones who benefit greatly from price discrimination are the producers. A perfect price discriminator is able to turn all consumer surplus into an abnormal profit. This means that the producers benefit at the cost of the consumers, since they are able to take all consumer surplus for themselves. This is possible because of price differentiation. Each consumer is charged differently and thus there is no consumer surplus left. A perfect price discriminator would be able to know exactly what the maximum price is a certain consumer would be willing to buy the good for.

    Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    Actually, the society is as a whole better off because of the fact that dead weight loss is eliminated. In a single price monopoly there is always some dead weight loss (or net loss) and there is also a consumer surplus area. However, in the case of the perfect price discriminator, dead weight loss is eliminated since it is able to determine how much a consumer would pay and thus eliminate losses.

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  48. Eamon Emonsta Stensoon 13 Dec 2010 at 5:13 pm

    Who suffers as a result of price discrimination?

    The Consumers are the losers in Price Discrimination because due to how responisve they are to a price change they will by the product making a greater producer suplus and a lower Consumer.

    Who benefits from price discrimination and how do they gain?

    The Producers are the winners because the producers have the ability to charge a diffrent price on the same product and people will still buy it. Their gain is that they have the ability to charge a diffrent price on the same product while consumers will still buy it. This increases their profits and making there profit pie greater.

    Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    For the Consumer its not a good thing because were being cheated by the company by buying diffrent products at a diffrent price.

    As a whole its a lot better because it elminates some of the DWL zone that the Monopoly produces as its ineffiecent making the Monopoly more efficent.

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  49. Anuon 15 Dec 2010 at 1:57 am

    1. Who suffers as a result of price discrimination?

    Consumers suffer as a result of price discrimination because they are charged based on their price sensitivity, and not 'normal' price determinants such as supply and demand.

    Who benefits from price discrimination and how do they gain?

    2. Firms prosper from price discrimination because they are able to charge the maximum price a consumer is willing to pay for a particular good or service. By selling to consumers at different prices, firms do not have to worry about the question "what price to set"?

    3. Is society as a whole better or worse off when a monopolist is able to price discriminate? Explain…

    Society as a whole is better off when a monopolist is able to price discriminate. Price discrimination ensures that consumers pay the price they are willing to pay and the firm receives the maximum revenue as well as profit that it could, minimizing dead weight loss.

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  50. Graham N.on 16 Dec 2010 at 12:28 am

    1. Buyers who would have a large consumer surplus at the equilibrium price are the victims of price discrimination. They are charged the price that are willing to pay instead of a lower one.

    2. Buyers who would have normally been unable to purchase a good at the equilibrium price gain from price discrimination. The business is able to offset the lower price to these consumers with the higher charges to wealthier customers.

    3. Society is better off when a monopoly is able to price discriminate because it eliminates the dead weight loss normally associated with monopolies. The money the monopoly makes is spread out to various parts of the market, so it is not "wasted" in society's eyes.

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  53. [...] come out later, and some potential customers might skip right over it. If you’re interested, here’s a nice explanation of price discrimination. Share this:TwitterFacebookLike this:LikeBe the first to like [...]

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