Business and Management
Submitted By apurv1991
Second Degree Price Discrimination:
If a single pricing strategy is used, the total revenue of the supplier is the area P2 C Q2*O.
If a second degree pricing discrimination is used, the supplier charges a cost P0 for the first Q0 items (point A), a price P1 for Q0 to Q1 items (point B) and a price P2 for Q1 to Q2* items(point C).
Thus by charging different prices for different quantities of items bought, the supplier is able to increase his revenue as indicated by the shaded portion. The cross dashed lines indicate the increase in revenue by following second degree price discrimination.
Fig: Second Degree price Discrimination
Thus, using second order price discrimination, the supplier gets to reduce the consumer surplus and increase his revenue by selling the same quantity of products at different prices to consumers.
Third Degree Pricing Discrimination:
In order to maximize total profits, the firm must sell in each market until MR1 = MR2 = MC will then involve selling the product at a higher price in the market with the less elastic demand.
The firm will maximize its total profit by selling the product in each market until MR1 = MR2 = MC.
Fig: Third degree price discrimination
Assume the firm operates in two markets, A and B. The demand in market A is less elastic compared to that in B. Thus, the firm can capitalize on the less price elastic market A by charging it a higher price for the same product than in market B.
According to latest reports published in June 2015, Disney is planning to use surge pricing to strategize its prices.
For instance, the single day price at Disneyland in Anaheim is currently $99 for any day of the week. The rumored pricing plan involves offering Gold ($115), Silver ($105), and Bronze ($99) ticket options that are…...