ABSTRACT
This chapter analyzes how firms charge different prices for the same or similar products depending on consumers’ willingness to pay. We introduce the three classic forms of price discrimination: perfect (first-degree), group-based (third-degree), and self-selection (second-degree). Using examples from climbing gyms, concerts, and digital subscriptions, we examine how monopolists segment markets based on observables (e.g., student ID), induce self-selection through versioning, bundling, or damaged goods, and apply two-part tariffs and freemium pricing. We derive optimal pricing strategies under each form, emphasizing the role of elasticity, marginal cost, and resale constraints. Applications include transport services, mobile apps, pharmaceuticals, and software. Welfare effects are discussed, showing how price discrimination may increase firm profits, alter consumer surplus, and reduce deadweight loss—sometimes enabling market access for low-valuation consumers.
