Ideally, firms would like to charge each consumer the maximum or reservation price that they could afford. Doing so would eliminate consumer surplus because each consumer would be paying exactly what they’d be willing to pay, therefore the price of the good/service would no longer prevent anyone from being able to purchase it. This type of discrimination is also known as first-degree discrimination and is considered to be ideal for firms.

First degree discrimination is great in theory, however is unpractical in application. How is a firm supposed

the United States, rely heavily on price discrimination. As mentioned earlier, peak load pricing is when consumers are charged different prices during peak periods. Train transit systems such as the DC Metrorail base their fares upon times of heavy volume like rush hour. The Metrorail also uses other third degree discriminations like free fare for chidren under five, reduced fare for business employees (through metrochecks given out by employers) and by reduced bus-to-train transfers.

The Airline industry like other travel industries has a great need for price

By solving the equatiosn in this model and using the assumption that MR1=MR2=MC, the conclusion can be reached that P1/ P2=(1+1/E2)/(1+1/E1). This ratio of prices tells us that the higher price should be charged to consumers with the lowere demand elasticistity. The peak rate demand curve is the least elastic in this case, so it should have the higher price. The pro-rated fare system of the Metro represents a case of third degree discrimination that increases revenue and reduces consumer surplus.

Some topics in this essay:
Introduction Price, Cost Co, DC Metrorail, Pricing Airline, American Airlines, P* Q*, Pricelinecom Priceline, American Airliners, III Conclusion, P1/ P2=1+1/E2/1+1/E1, price discrimination, consumer surplus, third degree, demand curve, degree discrimination, figure 1, discrimination policy, third degree price, perfect competition, pay price, set prices, degree price discrimination, form price discrimination, + figure 1, charging prices based,