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Retail / Price discrimination

Price discrimination

Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical perfect free market, that is, one with perfect information and no transaction costs, price discrimination should be exclusively a feature only of monopoly markets; in practice, however, it occurs with oligopolies such as the airlines, and even in fully competitive retail or industrial markets.

Although the term "discrimination" has negative connotations, "price discrimination" is a merely technical term meaning differentiation in price to increase efficiency.

Price discrimination requires market segmentation and some means to discourage discount customers from becoming resellers and, by extension, competitors. This usually entails one or more of preventing any resale, keeping the different price groups separate, making price comparisons difficult, or restricting pricing information. The boundary set up by the marketer to keep segments separate are referred to as a rate fence. Price discrimination is thus very common in services, where resale is not possible; an example is student discounts at museums.




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