Microeconomics: Theory and Applications with Calculus, 4e

12.4 Nonlinear Price Discrimination

Many firms are unable to determine which customers or groups of customers have the highest reservation prices. However, firms may know that most customers are willing to pay more for the first unit than for successive units: the typical customer’s demand curve is downward sloping. Such firms can price discriminate by letting the price that each customer pays vary with the number of units purchased. The firm uses nonlinear price discrimination (second-degree price discrimination). Here, the price varies with quantity but each customer faces the same nonlinear pricing schedule.8 To use nonlinear price discrimination, a firm must have market power and be able to prevent customers who buy at a low price from reselling ...