What is known as price discrimination?

Price discrimination refers to the practice of selling the same good or service at different prices to different customers based on their willingness to pay, not based on differences in the cost of providing the good or service. This approach allows companies to maximize their profits by capturing consumer surplus—charging customers the highest price they are willing to pay.

For example, a movie theater might charge different prices for tickets based on the age of the customer, offering discounts to children and seniors. Similarly, software companies may sell their products at different prices to regular consumers versus businesses in larger quantities. This strategy relies on understanding customer segments and their varying valuations of the product.

Other concepts, such as charging the same price to all customers, collusion to set prices, or using a single price strategy for all products, do not involve variation in pricing based on customer characteristics or demand elasticity, which is the essence of price discrimination. Thus, the option that accurately describes this pricing strategy is the one about selling a good at different prices to different customers.