Price Discrimination

     Price discrimination is the process of charging different people different prices for the same good.  There are multiple types of price discrimination, but in all cases, certain criteria must be met in order for price discrimination to occur.  Primarily, the firm must be a price maker.  If the firm participates in perfect competition, there is no way for them to choose prices and, therefore, there is no way to charge different prices to different groups.  Additionally, the firm must have the ability to separate markets and prevent sale between markets.  For example, a firm might sell tickets at different prices to children and adults if they can prevent adults from using children's tickets.  The markets must have different elasticities of demand as well, which will cause them to behave differently in response to different prices.  Lastly, the firm must be able to separate the markets cheaply.  If they cannot do this, they will not make enough profit from the price discrimination to cover the costs of implementing the discrimination so it will not be worth it in the long run.
   
First Degree Price Discrimination:
     In the first type of price discrimination, consumers will be charged the maximum price they are willing to pay.  This is called perfect price discrimination.  In this case, the firm will charge a different price for every unit consumed to maximize price so there will be no consumer surplus. 

Second Degree Price Discrimination:
     Second-degree price discrimination is that based on the quantity of product consumed.  For example, the price per unit is lower when a product is bought in bulk than as a singular item.  Usually, consumers will be much more likely to buy more of a product if they see that they can get a discount, though they will ultimately be spending more money.

Third Degree Price Discrimination
     Third-degree price discrimination involves charging different prices to different groups of people.  The example mentioned above with children's and adult tickets is an example of third-degree discrimination. 

Product Versioning
     One of the most common ways in which firms practice price discrimination is to offer slight variations on the same product to differentiate consumers' ability to pay.  For example, the same firm will offer regular tea, fair-trade tea, organic tea, and luxury tea.  By doing this, they separate consumers into groups.  Those that are willing to pay the most will pay more for luxury tea, even if it is, in essence, the same as regular tea, while those that are unwilling to pay nearly as much will buy regular tea.  In this way, firms can differentiate between groups of consumers.

Works Cited:
https://www.economicshelp.org/microessays/pd/price-discrimination/
https://www.investopedia.com/terms/p/price_discrimination.asp