It is a very classical topic in the Microeconomics part, also involved Industrial Economics etc.
Definition 1
A firm price discriminates when it charges different prices to different people, or different prices for different units of output, in ways that are not cost-related
There are three different forms of the Price Discrimination.
- **First degree (or perfect) price discrimination (1DPD)
- Sell individual packages to each consumer that fully extract all surplus.
- Relies on knowing the demand of each consumer.
- **Second degree price discrimination (2DPD)
- Offer a menu of (price, quantity) bundles from which consumers can self-select.
- Does not rely on knowing type of each consumer, but must know demand function of each type.
- **Third-Degree Price Discrimination (3DPD)
- Different linear prices to different types of consumers which the firm can identify.
- Relies on knowing the type of each consumer.