The Need to be Discriminating when Teaching Price Discrimination

Abstract

Price discrimination generally, and third-degree price discrimination in particular, are topics taught in almost every intermediate microeconomics subject. The theory, geometry, and even the algebra behind the concept are simple, and the phenomenon commonly occurs in the sale of many of the goods and services used frequently by students. Classroom discussion is usually vibrant as students can easily relate their experiences of being on the receiving end of third-degree price discrimination, usually to their advantage. However, the precision of the language used in the exposition of the theory in textbooks is generally less precise than one would hope for, leading to students confusing slope and elasticity. We ask in this note, therefore, that greater precision be provided by textbook authors in explaining why differing elasticities are associated with the prices paid by the two distinct groups of buyers under a third-degree price discrimination charging policy.