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Third Degree Price Discrimination

Is when firms charge a different price to different consumer groups. This is a very common form of price discrimination. For example this is done when cinema tickets are sold in which adults have to pay more compared to children.

Below is a table to show a firm that engages in this form of price discrimination in which those who value the good highly i.e. those that are paying £40 or more are charged £40. Whilst those that value it less i.e. those who value it below £40 get charged £20. Therefore in this case the firm has segregated the market into two different markets - high and low valuation.

Here is a graphical representation of the firm splitting the market into two different forms and therefore they face a kinked demand curve. Inelastic demand curve for high prices in market A and and elastic demand curve for low prices in market B.

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