Monday, July 24, 2006

Price Discrimination

Price Discrimination occurs when different prices are charged for the same product when there is no cost difference to the producer in supplying the product. This allows a firm to increase profits by taking advantage of exchange opportunities that would, at a single price, be foregone.

There are several types of price discrimination: charging a different price for each individual user, a different price depending on the quantity purchased, or a different price depending on who is purchasing the product. This last type is referred to as Third-Degree Price Discrimination (also known as Market Segmentation). It is a situation in which "each consumer faces a single price and can purchase as much as desired at that price, but the price differs among categories of consumers."

This concept explains why...

Microsoft Office at Best Buy: $399.99.

Microsoft Office at the SJSU bookstore: $80.

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