Price discrimination among units of output sold to the same consumer
requires that the firm be able to keep track of the units that a buyer
consumes in each period. Thus, the tenth unit purchased by a given
consumer in a given month can be sold at a price that is different from the
fifth unit only if the firm can keep track of that consumer’s purchases. This
can be done, for example, by an electric company through its meter
readings or by a coffee shop by using a “loyalty card,” whereby after
paying for seven coffees at the regular price the customer gets the eighth
for free.
Price Discrimination Among Market
Segments
It is usually much easier for firms to distinguish between different groups
of consumers of a product—different market segments—than it is to detect
an individual consumer’s willingness to pay for different units of that
product. As a result, price discrimination among market segments is more
common than price discrimination among units.
Suppose a firm with market power faces a market demand curve that is
made up of distinct market segments. These segments may correspond to
the age of consumers, such as children, adults, and seniors. Or the
segments may correspond to different regions in which the consumers
live, such as the North American automobile market being segmented
into the Canadian and U.S. segments. Whatever the nature of the market
segmentation, suppose the firm recognizes the distinct market segments