Price Discrimination
I. Introduction:
Price discrimination is present in some form is present in most industries. Many consumers may find the idea of being charged a different price than another consumer, unsettling, however such discriminations may benefit both the consumer and producer of a good or service. When studying economic situations, models are used which make basic assumptions such as perfect competition (price-taking firms), transitivity of goods, and full employment, however real markets are much more complex and consumer surplus is a nemesis for firms that wish to maximize profits. Such market imperfections account for significant reasons for a firm to use price discrimination.
Ideally, firms would like to charge each consumer the maximum or reservation price that they could afford. Doing so would eliminate consumer surplus because each consumer would be paying exactly what they?d be willing to pay, therefore the price of the good/service would no longer prevent anyone from being able to purchase it. This type of discrimination is also known as first-degree discrimination and is considered to be ideal for firms.
First degree discrimination is great in theory, however is unpractical in application. How is a firm supposed to know exactly how much
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