An Integrated Approach to Teaching Price Discrimination

Textbooks present the three ‘degrees’ of price discrimination as a sequence of independent pricing methods and consequently provide inadequate insight as to when a firm might adopt a particular pricing strategy. The paper describes a taxonomy of the various mechanisms of price discrimination, which can be used to teach monopolistic price discrimination in an integrated way. The pricing strategy adopted by firms is based on (i) the information on consumer demand available to it and(ii) whether the firm has the ability to conduct non-linear pricing. The paper proposes a method for ranking profit and efficiency levels under different price discrimination strategies. The proposed taxonomy is compared to the existing textbook approach.