Question

Describe the degrees of price discrimination.

Answer 1

Degrees of Price Discrimination:

Price discrimination has become widespread in almost all monopoly markets. According to A.C.Pigou, there are three degrees of price discrimination.

1. First degree price discrimination:
   A monopolist charges the maximum price that a buyer is willing to pay. This is called as perfect price discrimination. This price wipes out the entire consumer’s surplus. This is the maximum exploitation of consumers. Joan Robinson named it as “Perfect Discriminating Monopoly”.
2. Second degree price discrimination:
   Under this degree, buyers are charged prices in such a way that a part of their consumer’s surplus is taken away by the sellers. This is called as imperfect price discrimination. Joan Robinson named it as “Imperfect Discriminating Monopoly”.
   To this degree, buyers are divided into different groups and a different price is charged for each group. For example, in cinema theatres, prices are charged for the same film show from viewers of different classes. In a theatre, the difference between the first row of first-class and the last row in the second class is smaller as compared to the differences in charges.
3. Third-degree price discrimination:
   The monopolist splits the entire market into a few sub-market and charges different prices in each sub-market. The groups are divided on the basis of age, sex, and location. For example, railways charge lower fares from senior citizens. Students get discounts in museums and exhibitions.