What constitutes price discrimination?

Price discrimination refers to the practice of charging different prices for the same product or service to different customers. This strategy is often based on customer segments, which may include factors such as age, income level, or purchasing behavior. By understanding the willingness or ability to pay of distinct segments, a business can optimize its revenue by tailoring prices accordingly. For example, a company might offer discounts to students or senior citizens, recognizing that these groups may have different price sensitivities compared to the general population.

Charging different prices based on customer segments allows companies to capture consumer surplus—essentially extracting maximum value from each segment. This can lead to increased sales and profitability without altering the core product itself.

While the other options involve various pricing strategies, they do not specifically illustrate price discrimination. For instance, offering discounts based on sales volume is a pricing strategy that rewards bulk purchases but does not target different customer segments with varied pricing for the same product. Similarly, setting prices depending on geographical location relates more to geographic pricing strategies rather than segment-based price discrimination. Finally, bundling products for a single price involves selling multiple products together at one price point, which is a different pricing technique and does not classify as charging different prices for the same singular product to distinct segments.