12.1 Conditions for Price Discrimination
We start by studying the most common form of nonuniform pricing, price discrimination, where a firm charges various consumers different prices for a good.
Why Price Discrimination Pays
For almost any good or service, some consumers are willing to pay more than others. A firm that sets a single price faces a trade-off between charging consumers who really want the good as much as they are willing to pay and charging a sufficiently low price that the firm does not lose sales to less enthusiastic customers. As a result, the firm usually sets an intermediate price. A price-discriminating firm that varies its prices across customers avoids this trade-off.
A firm earns a higher profit from price discrimination ...
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