Question

What is the key distinguishing feature of a second-degree price discrimination environment in comparison to first- and third-degree?

		firms cannot prevent resale in second-degree environments
		firms are limited to only two consumer types in second-degree environments
		firms cannot distinguish consumer types before the point-of-sale in second-degree environments
		firms can capture all consumer surplus in second-degree environments

Answer 1

Option C.

• The key distinguishing feature of a second degree price discrimination in comparison to first and third degree is that the firm's cannot distinguish consumer types before the point of sale in second degree environments.
• Unlike first and third degree price discrimination environments, in second degree price discrimination, the price changes in accordance to the quantity demanded.
• If more units are purchased the price charged by sellers are lower as buyers who purchase in bulk earn higher discounts.
• But those seller's cannot distinguish between the different types of buyers and hence the power to form different consumer types is left to the consumers themselves until the point of sales.