Suppose you are trying to determine the pricing for popcorn at a movie theater. There are just two types of customers (for simplicity assume just two total customers). One customer has a low demand for popcorn and will pay $1.00 for 16 oz of popcorn and nothing for a second 16oz. The high demand customer will pay $1.25 for the first 16oz and $0.50 for the second 16oz.  If you charge one price for every 16oz a customer buys, what would you charge?

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A:

Price Discrimination

Price discrimination or differential pricing is based on the principle that the seller will charge the buyer a price based on the buyer’s ability and willingness to pay for the product rather than applying uniform pricing for all.