Price Discrimination in Firms. Why firms use price discrimination?

Price Discrimination in Firms
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Price Discrimination in Firms
Price discrimination is the charging of various price to different categories of a consumer for the same product. It has benefits to the consumer for cheaper price value of the goods, which may encourage more sale leading high-profit margin of the firm. However, the advantages of price discrimination are only beneficial to some groups of consumers, while others suffer the problem of high prices (Esteves & Vasconcelos, 2015). The business uses three natures of price discrimination that includes first degree, second degree, and the third degree to control the volume of sales in the marketing. The first degree involves a firm to charge the consumer’s maximum price, which they can afford to spend. The second degree is the pricing of different rates according to the quantity consumed by consumers. Lastly, third degree is imposing of diverse prices to various groups of customers such as students’ discount on the product.
Price discrimination allows firms to evade from becoming bankrupt when the business cannot make regular profits on the application of average prices. For instance, it can lead a firm to incur high average costs that would be higher than the demand curve. Price discrimination enables the firm to make small profits as it turns into a loss than the expected regular profits. It provides an opportunity to the business to keep going rather than closing down that is of economic benefit to the entire country as well as to the corporation. It is advantageous to some groups as the prices of the products are lower than the regular prices. Consumers are sensitive to rates; therefore, lowering the costs will lead to more sales that generate revenue for the business to keep going.
Price discrimination affects society in different ...