This video will be about third degree price discrimination which also is often called group pricing. So, third degree price discrimination is also called group pricing, and that's already going to give you some kind of idea of what we're actually facing, and how we engage in third degree price discrimination. So here firms observe consumer characteristics that are going to allow those firms to infer the willingness to pay, and therefore the price that they can charge accordingly. Importantly, we need to find the right consumer characteristics so we can identify our consumers, and we can see that they have different preferences, different willingness to pay, and so on. So, consumer characteristics could include geography, i.e. where are they located. It could include timing, when do they want to purchase a certain product or service, or the job that they currently hold, or the age and so on. So, in practice it means that we can charge different prices for different consumer groups. Typically, we'll have the lower price for consumers with greater price elasticity. In other words, those consumers or those parts of a consumer group that react most strongly to a change in price are typically going to be charged the lower price. And finally, and that's the challenge the seller, the firm, needs to be able to identify each consumer group by observable characteristics. So we need to be able to get some characteristics that allows us to infer what the willingness to pay and what the price elasticity of these people are. So, let's just have some examples. What the observable characteristic is, and what an example of third degree price discrimination is. So, by work status,which is actually a very common form of price discrimination, so you get student subscription to newspapers, lots of student discounts for example. Or, old age pensioner's discounts. Location. So coke costs a different price in the supermarket or at the airport. And it is typically cheaper at the supermarket because price elasticity of people who will want to buy something at the airport is assumed to be fairly low. Region. So, gasoline will cost more or less in Munich than in Cologne. So there's a different price that's being charged. Countries. So cars will cost different prices and comand different profit margins, in Germany and in Denmark. And it's more expensive to travel in peak periods than in off peak periods. So, all of these are examples of third degree price discrimination i.e. where we can identify different consumer groups, different consumer characteristics, and we can charge different prices accordingly. So, we've discussed first, second and third degree price discrimination. What more is there to say? Well I've got one more video for you before this module is wrapped up, and it's about intertemporal pricing. [BLANK]
