Second price discrimination is also called non-linear pricing. This discrimination, like other price discrimination, is practiced by firms with monopoly power. Here, the firm sells different quantities of outputs for different prices per unit. The discrimination is not among the customer and hence for those who buy equal quantities of a commodity pay equal price per unit. The monopolist provides the same schedule of prices to all consumers and the consumer decides independently, the quantity to buy and price to pay (Kwoka, 1979).
What to Know
A firm has imperfect information about the buyers and their preferences. However, as long as it is a price maker and that there no other firm to take advantage of the firm’s pricing strategies, then it can adopt second degree price discrimination as long as they retain control of prices. There are other things that it must be aware of.
To start with, the seller must be able to indentify different buyers. In this case, the seller has to know the various price elasticity of demand so as to tell the implication of charging higher or less in relation to the quantity purchased. If elasticity and willingness to pay are the same then discrimination should not be adopted (Kwoka, 1979).
Secondly, the seller must be aware of the possibility of arbitrage amongst the consumer. It should be such that, to those that are able to buy in bulk and at a lower price, they are not able to resell the goods to others at higher prices, lest discrimination would be detrimental to the firm. Therefore the monopoly should be able to separate and keep the market segment separate (Kwoka, 1979).