Price discrimination: A classroom experiment

ABSTRACT

In this article, the authors describe a classroom experiment aimed at familiarizing students with different types of price discrimination (first-, second-, and third-degree price discrimination). During the experiment, the students were asked to decide what tariffs to set as monopolists for each of the price discrimination scenarios under consideration. The objective was to allow the students to work empirically, through trial and error, selecting tariffs for each type of discrimination that would maximize a monopolistic entrepreneur's profits. The purpose of the exercise also was to enable the students to differentiate each type of price discrimination and to set tariffs in each case, as well to help them understand the repercussions in terms of welfare for each type of price discrimination.

KEYWORDS:

• Economic experiments
• imperfect competition
• price discrimination

JEL CODES:

• A22
• D21
• D42

Acknowledgements

The authors extend special thanks to Pablo Brañas, Nikolaos Georgantzis, and Cesar Nebot for introducing the class experiments to them.

Notes

1. All the materials used in the experiment are available on request.