Price discrimination takes place when the same provider provides the same products and services at different prices to the customers in the market. The price discrimination is only possible in monopolistic or an oligopolistic market as significant market power is needed to exercise it. Three degrees of discrimination are present.The first degree of price discrimination involves estimating the highest subjective price the customer is willing to pay for a product and charging it from the customer. This can be targeted through premium pricing as well however estimating the maximum price the customer is willing to pay is very difficult. The second degree of price discrimination involves setting the price as per the quantity sold. Large quantity means less price per item and vice versa. Quantity discounts depict this pricing strategy. The third degree of price discrimination is where the price of the product varies according to the location or the customer segment. This can take the form of differentiated pricing where the same product is sold to different customer segments at different prices. Price discrimination can be both beneficial as well as bad for the customers as it makes it possible for some customers to pay less for the product while charging the others a higher price.
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