Price discrimination means selling the same good at different prices depending on the buyer. Far from always unfair, it ranges from the student fare to the price computed from your data. Its stake: the "consumer surplus," that good deal the seller sometimes seeks to capture in full.
1 What is price discrimination?
One good, many prices.
Definition
The same good at different prices
There is price discrimination when a seller charges different prices for an identical good, without the gap matching a different cost. It requires three conditions: some market power, the ability to sort buyers by what they are willing to pay, and the impossibility of reselling from one buyer to another. The digital world now brings these conditions together as never before.
2 The three degrees
A scale, from Arthur Pigou.
The 1920 classification
①
Third degree. By observable segment: student, senior, morning showing. The most common, the most accepted.
②
Second degree. By quantity or version: volume rebates, subscription plans. The buyer chooses for themselves.
③
First degree. The price at each person's maximum. The "perfect" discrimination, long theoretical, that data makes possible.
3 Consumer surplus
The good deal at stake.
The mechanism
Capturing what you were willing to pay
The consumer surplus is the gap between the highest price you would have accepted and the one you actually pay. It is your gain from the trade. First-degree discrimination, the perfect kind, aims to drive it to zero: by setting your price at your maximum, the seller recovers all the advantage. The finer the discrimination, the more the surplus slides from the consumer to the firm.
4 Efficiency or equity
A trade-off, not a verdict.
The two faces
Price discrimination has two faces. On the efficiency side, it can serve more people: by charging each according to their means, it lets modest buyers reach a good a single price would close off. On the equity side, it transfers wealth from consumer to seller, and charges the most to those with the least choice. Depending on the case, it widens access or exploits a captivity. That is the whole stake of personalized pricing.
5 Takeaways
To remember.
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To discriminate is to sell the same good at different prices by buyer.
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Three degrees (Pigou): by segment, by quantity, or at each person's maximum.
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The first degree captures all the consumer surplus; the digital world finally makes it possible.
This notion illuminates an analysis
First published: 18 June 2026