Price discrimination. The practice of charging unequal prices or fees to different buyers (or classes of buyers) is called price discrimination. Examples of price discrimination. Physicians charge more for an office visit if the patient has health insurance.
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The practice of charging unequal prices or fees to different buyers (or classes of buyers) is called price discrimination
A Mercedes driver can pay more, so why not charge them more?
1st Degree Price Discrimination
This is referred to as “perfect” PD. The seller charges every buyer their “reservation price”—that is, the maximum price they are willing to pay rather then go without the marginal unit of the good or service
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Price discriminating firm sets MR = MC in each “sub”market
D cable + tires
MRC + t
So, du Pont can increase its profits by $200 (from $1,800 to $2,000) by practicing price discrimination
The welfare effects
Moral of the story
By enforcing statutes applicable to price discrimination (specifically, section 2 of the Clayton Act) , the total surplus could be potentially increased by $250.