Application Of Price Discrimination In The Market For Economics Tuition
Price discrimination is one of the topics in the chapter on market structure. It is also covered in the subject of industrial organization. As there exist different types of price discrimination, there is no standard definition of price discrimination. Price discrimination has been widely studied by economists around the world. The use of the price discriminatory practice spans from the market for economics tuition to the market for cinema movie. Students can take economics tuition from a qualified economics tutor in Singapore to achieve a better understanding of the different types of price discrimination practiced by firms. As they will find out, price discrimination can be broadly classified into three categories commonly known as first-degree price discrimination, second-degree price discrimination and third-degree price discrimination. I will provide an exposition of price discrimination with the reference to the market for economics tuition.
First-degree Price Discrimination
First-degree price discrimination is the type of price discrimination which is the least commonly practiced. Also known as perfect price discrimination, first-degree price discrimination leads to zero consumer surplus. Under first-degree price discrimination, every consumer is being charged the highest price for each unit of the good which they buy. For example, first-degree price discrimination occurs when an economics tutor who specializes in A level economics tuition charges a student the highest fee that they are willing and able to pay for economics tuition. First-degree price discrimination is not widely practiced by firms due to the fact that consumers are likely to feel that they are being exploited as the practice will lead to zero consumer surplus.
Second-degree Price Discrimination
Second-degree price discrimination does not refer to any particular type of price discrimination. Rather, it refers to a group of price discriminatory practices which are used to approximate first-degree price discrimination. To put it somewhat differently, second-degree price discrimination refers to all types of price discriminatory practices which are designed to minimize consumer surplus. These measures include block pricing, quantity discount and two-part tariff. The practice of imposing a lump-sum charge in addition to a per-unit charge is known as two-part tariff. Take two-part tariff in the market for economics tuition for example. When a student signs up for economics tuition in an economics tuition centre in Singapore, the economics tutor will usually require the student to pay a registration fee. As the registration fee is independently of the number of economics tuition lessons that the student will attend, it is as lump-sum charge. In addition, the economics tutor will require the student to pay a certain amount of tuition fee for each economics tuition lesson which they attend. Therefore, the total amount of tuition fee that the student will pay will depend on the number of economics tuition lessons which they will attend until the time they quit. Therefore, the tuition fee is a per-unit charge.
Third-degree Price Discrimination
Third-degree price discrimination is the price discriminatory practice which is most commonly practiced by firms. A firm practices third-degree price discrimination when it charges different prices for the same good in different markets. The market with the lower price elasticity of demand is charged a higher price, and vice versa. The use of the price discriminatory practice spans from the market for economics tuition to the market for air travel. For example, in some economics tuition centres in Singapore, the economics tutors charge students from lower income families a lower fee due to the higher price elasticity of demand which is the result of the larger proportion of income spent on economics tuition. It is important to note that when an economics tutor charges students from lower income families a lower fee, it does not necessarily be done with the objective of maximizing profit through the use of price discrimination. Instead, the economics tutor may be doing it out of goodwill with the objective of helping the needy.
Ben Tan
Economics Tuition Singapore @ Economics Cafe
Principal Economics Tutor: Mr. Edmund Quek