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What is third-degree price discrimination?
Price discrimination helps the producers to retain some value of consumer surplus in their revenues. Through different methods, one can achieve a better percentage on their degree of revenue. One such type is third-degree price discrimination.
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In this type of price discrimination, the firm allows their demographics to make a decision in what type of discounts can be given to a different segment of consumers. One can understand the same with an example of McDonald’s discounts. There are better discounts given to youth and staff in the mall, as the elasticity of their demand is much higher than another type of consumers. SO basically, the price discrimination under this degree is dependent on the elasticity of demand for various types of buyers.
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Another interesting example of the same is public transport. Considering metro usage by different age group of people: If students are recorded as the most number of people traveling in the metro, they might be given better discounts than those of senior citizens who hardly use metro facility! This way, there will be more students attracted to this service which means that the firm is earning some part of the consumer surplus. Though,one can experience that there is price-discrimination, but it is genuine according to the elasticity of demand is greater of students than senior citizens.
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