Allowing Buyers to Self-Select By Willingness to Pay: Second-Degree Price Discrimination Strategies
The obvious limitation of first-degree price discrimination is the level of consumer-specific information needed to extract the buyer’s consumer surplus. An alternative to first-degree price discrimination is second-degree price discrimination. Here, the firm has an awareness of the distribution of consumer preferences in aggregate and a sense that different market segments exist. The goal of second-degree price discrimination, therefore, is to design a pricing scheme that causes buyers to self-select based on their willingness to pay. In doing so, the firm is able to extract some, albeit probably not all, of the ...
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