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s1 {font-kerning: none}For price discrimination to be existent, firms cannot be perfect competitors and must be able to separate consumers according to their price elasticity of demand. Also, customers must have different price elasticities and are unable to resell the product, otherwise we would have an orbit rush (situation whereby you are buying a product or service at a cheap price and selling it at a higher price). price discrimination can be classified as the first, second or third degree.

First-degree price discrimination is when firms sell their product/service to customers the price they are willing to pay, rather than the actual selling price. Here, demand is not greater than MR but equals to each other i.e D=MR since firms do not have to lower the price of previous units. To sell another unit, the price discrimination monopoly lowers the price to the next unit. However, the other person who paid the higher price ends up paying the high price still.

Thus, this practice is successful when firms can extract consumer surplus to convert it to higher revenue.In the real world, perfect price discrimination is not easy to achieve since firms cannot exactly know how much consumers are willing to pay.Second degree PD is when firms charge different prices to different consumers for the same good based on the quantity or volume purchased deemed to be surplus capacity. From the economics perspective, there is going to be an increase in producer surplus and an increase in consumer surplus and a decrease for those who pay higher prices. Third degree PD is when total market is broken down into sub-markets which have varying prices to maximise profit.

Such groups can be identified by different characteristics. Higher prices will be charged to those sub-markets where the elasticity of demand is lower.

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