Definition of direct price discrimination

Pricing strategy that charges different prices relative to costs according to buyer’s type for the same good or service.  It is designed to elicit higher profit margins from buyers with higher willingness to pay.

By using direct price discrimination, the seller can raise profit.  However, if the discrimination is not precise, the seller might lose some sales by setting a price above the customer’s willingness to pay.  Direct price discrimination requires detailed information about each customer segment’s willingness to pay.

Example

For instance, cinemas charge higher prices to adults than children as adults tend to have a decent level of disposable income.   Tourist attractions in some countries charge higher prices to overseas visitors than locals, as tourists are willing to pay more to make the most of their time on holiday.  Tourist attractions also charge a lower rate to students as they do not generally have high incomes. [1]

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