What is meant by price discrimination?

Price discrimination, also known as differential pricing, is a pricing strategy where a business charges different prices to different customers for the same product or service [1]. This differentiation is based on the seller's assessment of a customer's willingness to pay rather than differences in production costs. Economists categorize this into three degrees: first-degree (charging each customer their maximum willingness to pay), second-degree (quantity discounts), and third-degree (segmenting customers by attributes like location or age) [2]. In contrast, an increase in the price of a commodity over time is defined as inflation [3], while a general decrease is termed deflation [3]. Government intervention to lower prices through upper limits is known as a price ceiling [2]. Therefore, price discrimination specifically refers to price variation across different purchasers in the same market period [1].

Sources

1. [1] https://unstats.un.org/unsd/nationalaccount/snaupdate/2025/2025SNA_CH18_V5.pdf
2. [2] https://www.investopedia.com/terms/p/price_discrimination.asp
3. [3] https://www.imf.org/en/publications/fandd/issues/series/back-to-basics/inflation