What is price discrimination?

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Price discrimination refers to the practice of charging different prices to different consumers for the same good or service. This approach is typically based on varying factors such as the consumers' willingness to pay, age, location, or purchase volume.

The essence of price discrimination lies in the seller's ability to maximize revenue by capturing consumer surplus—essentially, charging some consumers more when they are willing to pay higher prices while offering lower prices to those who are more price-sensitive. This strategy can enhance sales and profitability for firms, as it enables them to tailor pricing strategies to different segments of the market.

In scenarios where the other options are mentioned, charging the same price to everyone doesn’t take advantage of different consumer valuations and thus doesn't qualify as price discrimination. Similarly, offering equal discounts to all would not differentiate between varying levels of consumer willingness to pay. Finally, setting a fixed price for all goods eliminates the opportunity to adjust prices based on consumer behavior and market factors, negating the benefits that come with implementing a price discrimination strategy.

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