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Economic review

What is price discrimination?

Price discrimination refers to the ability of a firm to charge different prices for identical products to different individual consumers or groups of consumers (for example consumers paying different prices for seemingly identical flight tickets, or students receiving a discount in a clothing shop)

First degree (perfect) price discrimination occurs when a firm charges each customer the maximum price they are willing to pay for each unit of the good.

Second degree price discrimination where a firm offers consumers a range of different pricing options for the same or similar product. The lower prices are conditional on some aspect of the sale such as the quantity purchased or the use of vouchers.

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The economics of education

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