Non-linear
pricing is about charging different prices to different consumers - but
within the same market.
Hal Varian of the School of Information Management and Systems at the
University of California in Berkeley summarizes the treatment of "Price
Discrimination" in A. C. Pigou's seminal 1920 tome, "The Economics of
Welfare":
"First-degree price discrimination means that the producer sells
different units of output for different prices and these prices may
differ from person to person. This is sometimes known as the case of
perfect price discrimination.
Second-degree price discrimination means that the producer sells
different units of output for different prices, but every individual
who buys the same amount of the good pays the same price.
Thus prices depend on the amount of the good purchased, but not on who
does the purchasing. A common example of this sort of pricing is volume
discounts.
Third-degree price discrimination occurs when the producer sells output
to different people for different prices, but every unit of output sold
to a given person sells for the same price. This is the most common
form of price discrimination, and examples include senior citizens'
discounts, student discounts, and so on.
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