Y2 19) Price Discrimination - First Work is when a seller charges different prices to different people for the same thing, like how you might pay more for candy than your friend does.
Imagine you and your friend both want to buy ice cream from the same shop. The shopkeeper knows that you really, really love chocolate ice cream and are willing to pay extra for it. But your friend is okay with just a plain vanilla cone. So the shopkeeper sells you a big, fancy chocolate sundae for $5, but gives your friend the same size vanilla cone for $3.
That’s price discrimination, the shopkeeper uses what they know about each person to charge different prices.
Why It Works
The shopkeeper isn’t doing magic, they’re just using a little trick. They figure out who is willing to pay more, and they give them the better deal (or the bigger price). It’s like getting a special offer because you're the kind of person who loves chocolate ice cream, or maybe you're the kind who always wants the biggest cone.
It works because not everyone values something the same way. Some people are ready to pay more, and some are happy with less. The shopkeeper uses that difference to make more money!
Examples
- A pizza shop charges more for a large pizza on weekends than on weekdays.
- A taxi company gives discounts to students during off-peak hours.
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See also
- What is LRATC?
- How Does Pricing strategy an introduction Explained Work?
- Why Do Companies Raise Prices When Demand Increases?
- George Selgin: Do we really need Central Banks?
- Gold isn’t rare. So why is it valuable?