Price discrimination: definition, degrees and examples

Price discrimination, or price discrimination, involves selling the same product at different prices depending on the customer, the quantity purchased, or the context of the purchase, without the price difference reflecting a difference in cost. The goal is to capture a larger share of what each customer is willing to pay: to charge more to those who value the product most, while retaining price-sensitive customers. Despite its name, it is most often legal: student discounts, zone-based pricing, and volume discounts are common examples.

The three degrees of price discrimination, described by economist Arthur Pigou, range from the most personalized to the most collective. At the first degree, each customer pays a price close to what they are willing to pay, as in an individual negotiation. At the second degree, the price depends on the quantity or version the customer chooses: volume discounts, large format, premium range. At the third degree, the price depends on the customer's group or location: student discounts, different prices from one store to another.

Yes, price discrimination is legal in most of its forms: prices based on quantity, format, time of purchase, geographic area, or customer status, such as student or senior discounts. It becomes illegal when the price varies according to a discriminatory criterion as defined by the Penal Code, such as origin, sex, or religion, or when it misleads the consumer about the actual price charged. Between businesses, it falls under competition law, which notably penalizes abuses of a dominant market position.

Examples of price discrimination are numerous in everyday life. Train or plane tickets whose price varies depending on the booking date. Student discounts at cinemas or on public transport. A lower price per kilo for a large format than for a small one. Different prices from one store to another within the same chain, depending on local competition. Discounts reserved for loyalty card holders. In each case, the same product, or nearly so, is sold at different prices to customers who have different price sensitivities.

Price discrimination and price segmentation describe the same idea on two levels. Price discrimination is the economic principle: charging different prices to customers with different willingness to pay. Price segmentation is its commercial implementation: defining customer segments, versions, or price levels, and separating them sufficiently so they don't cannibalize each other. The term "segmentation" is more commonly used in business because it avoids the negative connotation of the word "discrimination." See price segmentation .

Price discrimination presents three risks. The first is the blurring of market segments: if customers willing to pay more easily access the lower price, the profit margin decreases without any increase in volume. The second is a loss of trust: price differences discovered by customers, without any understandable rationale, can be perceived as unfair and damage the price image. The third is legal: a price that varies according to a prohibited criterion exposes the company to penalties. Hence the importance of clear, explainable, and documented rules for each price difference.