7.8.3—Price discrimination

Price discrimination occurs when a seller charges different prices to different customers for the same product or service, not because the cost of supplying them differs, and prevents effective resale.

The firm needs market power and information or a way to segment customers. It usually charges a higher price to a group with less elastic demand and may use the extra revenue to expand output.

Peak and off-peak rail fares can separate commuters from flexible travellers when tickets are not freely transferable. The price gap reflects demand conditions, not necessarily different train costs.

Different prices are not automatically price discrimination: cost differences, quality differences or competitive discounts can explain them without the required market conditions.