Y2/IB 20) Price Discrimination - First, Second and Third Degree

A2/IB 20) Price Discrimination - First, Second and Third Degree - How do monopoly firms price discriminate? A look at the different degrees of price discrimination and why they can occur

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[@sabrinaj4038]

+EconplusDal In my textbook it says secound degree price discrimination occurs where different prices are charged depending upon the quantity consumed ? e.g.wholesale markets :S

[@thewhowhatwherewhyho]

In second degree price discrimination, how is the vertical part of MC 0 at the start? The diagram makes it look like it's constant (the cost of producing one more unit is the same). Can someone please explain this to me? thanks :)

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[@karenlatuner1126]

You prophesied! Net Neutrality FIRST Degree: Perfect price discrimination by the individual consumer. Each consumer pays exactly what he or she is willing to pay. Frightening!

[@user-zs7qx7vn9u]

awesome explanations, appreciated!

[@MasterToast000]

Nice video, how would you use the demand and supply diagram for third degree price discrimination to explain adult and child prices for a a cinema or train

[@nils7089]

The example for third degree price discrimination is an example of peak-load pricing, which is different from third degree price discrimination, because the Marginal Revenues for the different consumer goods do not have to be the same

[@lauradunn8544]

Thanks so much for explaining this to me. This has helped a lot, I am beginning to get it. This is a scary topic as you have stated. Do you think that there should be laws against price discriminations, like the first degree turning into a monopoly?

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[@aaronsweeney572]

could you say that there's additional consumer surplus for 3rd degree for elastic consumers when prices are lowered?

[@bhaveshdhingra794]

great video, my teacher taught me that second degree is consumer groups, but in this you showed excess capacity. in third degree she showed prices in different countries being different. does this still apply?

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[@adambilbey95]

Is arbitrage and market seepage the same thing? Also thanks for the help, these videos are amazing. Why did I bother going to class when these videos exist?

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[@harrysotheran8489]

Is it price discrimination if you charge someone less for bulk buying?

[@harsh0811]

1) Isnt auction and ebay bids a form of 1st degree price discrimination? 2) Isnt second degree price discrimination when different prices are charged by a firm on the basis of quantity purchased... eg. bulk discount?? Thanks in advance

[@kennethfoster3913]

The reason auctions are not quite 1st degree is the fact that those markets deal in unique (or, perceived as unique) goods. 1st degree describes a situation where every person is being charged a different price for the same good.

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[@Tominater6]

Great video, thanks for the help! Just a quick question, would you need to draw average cost curves in the diagrams for second and third degree price discrimination if you were using them in an exam question?

[@EconplusDal]

No you wouldn't need to - the diagrams simply represent different prices given different market scenarios. The AC curve would help you measure profits, but that isn't what these diagrams are helping explain. As long as two different prices are shown...job done

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[@hustleash6968]

do we still need to learn about first and second degree price discrimination? i only saw third degree in the new spec for edexcel

[@robsrenna]

no we don't but it'll be useful to know for evaluation, etc.

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[@lily-cq6lq]

this may be a stupid question but in second degree price discrimination, when an airline company lowers the prices of the last few seats to sell them before they fly, for example, is that an example of revenue maximisation?

[@muhammeddanyaal4289]

lily don't know whether this is fully correct but no because revenue maximisation is where MR=0, meaning no marginal revenue gained through selling extra output . Second price discrimination shows that firms later operate where MC=AR (Allocative efficiency)

[@kennethfoster3913]

It's not a textbook example of revenue maximization, no. That is, it doesn't fit a basic MR=MC model. That said, in a layman's sense, of course they're doing it to maximize revenue! Just not in a way that intuitively fits on a simple equation.

[@Marsiano12]

Isn't peak-load pricing different from third degree price discrimination because with 3rd degree price discrimination costs of serving the two groups are not independent?

[@robbiebrown602]

why is the mc curve flat??

[@kennethfoster3913]

The shape of the MC curve doesn't change the main point of PD models, so a lot of educational examples use a simple constant marginal cost. It makes the concept easier to explain.

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[@kylaatkinson1090]

For first degree price discrimination............ what if it's a cheap consumer and they say some ridiculously low price, wouldn't the producer lose?

[@MrFyneBoBo]

What degree would you use to justify why medicines (such as maleria tablets) are provided cheaper to developing countries (when their demand is higher) but provided more expensive to developed countries (where the demand is lower)?

[@RedLobsterPro]

I believe it would be first degree, as those in developing countries have lower incomes and thus will not be able to pay higher prices like developed countries

[@kennethfoster3913]

No. 1st degree discrimination is where every individual person is charged a different price equal to their maximum willingness to pay. MrFyne, 3rd degree discrimination is the best description of differing prices between countries. Just to clarify, however, developing countries have LOWER demand, not higher. Because of lower incomes they cannot afford (that is, demand) medicines at the same price as a developed country.

[@user-no4bh1xj4b]

@@kennethfoster3913 Instead of saying that developing countries have lower demand, actually I think they have higher PED, because the proportion of income spent on the medicine is relatively higher than those in developed countries.

[@kennethfoster3913]

@@user-no4bh1xj4b remind me what PED refers to? I commented on this AWHILE ago. I finished my degree since then and don't remember as much lingo lol.

[@user-no4bh1xj4b]

@@kennethfoster3913 No 3 degree discrimination is where business charge different prices for those consumers who have different price elasticity of demand (PED)

[@user-ok3hx8qn7p]

Hello, can the tickets to a cinema or a zoo be considered as a prise discrimination, if for example Adult is paying £10, Student £7 and old people £5... Surely this is charging different prices for the same good/service.

[@Enviouskibbles]

yes, that is exactly price discrimination. There has been an example question by Edexcel which had a case study of cinemas (third degree discrimination).

[@CopycatStudiosLA]

i dont knw what elastic demand means I dont know what most of these jargons mean - pls enlighten me

[@anishmanchanda4988]

copy cat Elasticity of demand is of various types.It can be price Elasticity,income Elasticity and cross price Elasticity. However price Elasticity of demand is the most general one. It means the change in the quantity demanded owning to change in the own price of the commodity.In formula it can be expressed as % change in quantity demanded ÷ % change in price of the commodity.For example: If the price of a good increase by say €1 how much does your demand changes.It depends upon various factors. U can also use calculus in this.p/q× dq/dp.

[@sharonbolmentbolment8951]

Are u from ENgland?

[@nikolaslanaras9054]

In the third degree, why is the MC curve parallel to the Quantity-axis? Isn't it usally "U" shaped?

[@alirezazadeh]

no, its pretty much the same reason as before

[@fathertedczynski]

Ali RS But what about for 3rd degree discrimination for a good that isn't stocked, like a razor for instance? There is an increasing marginal cost in producing these goods like any other because of diminishing marginal returns that don't exist for aeroplane tickets for instance. But wouldn't 3rd degree discrimination still be possible for certain demographics, such as women and men for razors?

[@alirezazadeh]

I can see where you are coming from but fundamentally a razor cannot be price discriminated. I just can’t see it in the nature of the product

[@alirezazadeh]

It could be price discriminated in the 1st degree but that’s irrelevant

[@fathertedczynski]

Ali RS Surely anything with groups of buyers that are willing to pay different prices and thus resulting in different elasticities is capable of being used for price discrimination. I used razors as an example because women and men have different elasticities of demand. I'm assuming I could probably just draw a diagram with an upward sloping MC and show the same effect anyway.

[@grynda123]

In my textbook it says secound degree price discrimination occurs where different prices are charged depending upon the quantity consumed ? ????plzz help

[@HazzaGFX]

I'm guessing that means if the quantity consumed is low, they'll lower price to sell off the remaining good or service.

[@yevinful]

take example of electricity fees for firms and households..you'll understand

[@sawrabhkumar9213]

why did you skipped so many things in the 1st degree price discrimination.like mc=p,mr overlay on the demand curve etc.

[@anmpir]

Seepage is also known as arbitrage

[@Fudgey1010]

How is marginal cost 0 in 2nd degree? Surely it's just a constant amount - it's above the x-axis?

[@allentom97]

the horizontal line is the mc it just becomes infinite at full capacity

[@Fudgey1010]

+allentom97 yeah but he said for the horizontal part mc=0 but I don't get how because it's above x-axis

[@allentom97]

+Fudgey1010 I think that was just a mistake, I presume he meant that it was a constant value (or that the x axis represents an MC of 0)

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[@JustOnlyAUtuber]

Isn't auction a form of first degree discrimination?

[@dannygarcia3863]

Why is MC vertical for second degree?

[@allentom97]

its horizontal (constant) until you reach full capacity then no matter what you pay to have done you cant increase the capacity thus the cost is "infinite" so to speak! Hope this helps! For example you cant increase the number of seats on a plane (realistically)

[@dannygarcia3863]

allentom97 sort of, why is the cost infinite?

[@allentom97]

+danny garcia because at full capacity you can't increase your capacity in the short run, in the example of planes if a company has 1 plane with 50 seats they can (in the short run) only sell a maximum of 50 tickets, therefore the cost of supplying another seat is effectively infinite

[@dannygarcia3863]

allentom97 oh ok, I don't understand the concept of it being infinetely expensive though, why is it not just non-existent?

[@allentom97]

+danny garcia because it is very hard to represent that in a diagram, the cost doesn't just disappear (if you were to remove the line) it just acts as a clear barrier to remove ambiguity

[@kjcrespo222]

Car dealerships definitely use 1st degree price discrimination.

[@tylerooney790]

1st degree and 3rd degree seem pretty similar

[@Enigmo1]

they are, but first degree unrealistically requires firms to charge each individual the most they're willing to pay. i guess it's not so unrealistic in third-world countries with commerce, where traders would be willing to lie and charge someone more if they appear wealthy. Another case that has similarities to first degree, is an auction where the item is sold for the highest amount that one particular individual is willing to pay

[@ashleyashleym2969]

If you're smart about it, price discrimination actually works in your favor as the consumer because they company massively discounts it for you to a point where it doesn't make sense not getting it as the alternative is more expensive. And as a consumer I like that. Because uber does price discrimination, a lot of the time I take Uber over the bus because uber is cheaper than the public bus! You would think no way, but way! It's a far better service for a cheaper price!

[@Ahmed____]

Brings into account the predatory pricing strategies to obtain a monopoly, push consumer demand to be inelastic due to a lack of alternatives, and then massively inflate prices. Fantastic for consumers and consumer surplus in the short term, very bad for consumers in the long term.

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