Playing with Fire: Price Discrimination in Practice

Charging different prices to different customers is the definition of price discrimination, a term coined in 1920 by Arthur Cecil Pigou in The Economics of Welfare. Price discrimination occurs when a good or service is sold at different prices that do not reflect differences in production costs. Companies engage in this practice in order to extract the consumer surplus from various customers. It is worth noting that price discrimination does not imply discriminating against people based on race, gender, religion, ethnicity, and so forth, but only on their willingness and ability to pay, which is based on the value they are receiving. Ed and Ron will explore the four requirements for a business to be able to price discriminate, the three degrees of price discrimination, examples of this practice, and the ethics of charging different prices to different customers.