Price discrimination has goal capture
Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different market segments. Price discrimination is distinguished from product differentiation by the more substantial difference in production cost for the differently priced products involved in the latter strategy. Price differentiation essentially relies on the variation in the customers' willingness to pay and in the elasticity of their demand. For price discrimination to succeed, a firm must have market power, such as a dominant market share, product uniqueness, sole pricing power, etc. All prices under price discrimination are higher than the equilibrium price in a perfectly competitive market. However, some prices under price discrimination may be lower than the price charged by a single-price monopolist. Price discrimination is utilised by the monopolist to recapture some deadweight loss. This Pricing strategy enables firms to capture additional consumer surplus and maximize their profits while benefiting some consumers at lower prices. Price discrimination can take many forms and is prevalent in many industries, from education and telecommunications to healthcare.The term differential pricing is also used to describe the practice of charging different prices to different buyers for the same quality and quantity of a product, but it can also refer to a combination of price differentiation and product differentiation. Other terms used to refer to price discrimination include "equity pricing", "preferential pricing", "dual pricing" and "tiered pricing". Within the broader domain of price differentiation, a commonly accepted classification dating to the 1920s is:
"Personalized pricing" (or first-degree price differentiation) — selling to each customer at a different price; this is also called one-to-one marketing. The optimal incarnation of this is called "perfect price discrimination" and maximizes the price that each customer is willing to pay. As such, in first degree price differentiation the entire consumer surplus is captured for each individual.
"Product versioning" or simply "versioning" (or second-degree price differentiation) — offering a product line by creating slightly differentiated products for the purpose of price differentiation, i.e. a vertical product line. Another name given to versioning is "menu pricing".
"Group pricing" (or third-degree price differentiation) — dividing the market into segments and charging a different price to each segment (but the same price to each member of that segment). This is essentially a heuristic approximation that simplifies the problem in face of the difficulties with personalized pricing. Typical examples include student discounts and seniors' discounts.Uniform pricing
where the seller sets the same price for each unit of the product.The hierarchy—complete/direct/indirect/uniform pricing—is in decreasing order of profitability and information requirement. Complete price discrimination is most profitable, and requires the seller to have the most information about buyers. Next most profitable and in information requirement is direct segmentation, followed by indirect segmentation. Finally, uniform pricing is the least profitable and requires the seller to have the least information about buyers is.Explanation
The purpose of price discrimination is generally to capture the market's consumer surplus. This surplus arises because, in a market with a single clearing price, some customers (the very low price elasticity segment) would have been prepared to pay more than the market price. Price discrimination transfers some of this surplus from the consumer to the seller. It is a way of increasing monopoly profit. In a perfectly competitive market, manufacturers make normal profit, but not monopoly profit, so they cannot engage in price discrimination.It can be argued that strictly, a consumer surplus need not exist, for example where fixed costs or economies of scale mean that the marginal cost of adding more consumers is less than the marginal profit from selling more product. This means that charging some consumers less than an even share of costs can be beneficial. An example is a high-speed internet connection shared by two consumers in a single building; if one is willing to pay less than half the cost of connecting the building, and the other willing to make up the rest but not to pay the entire cost, then price discrimination can allow the purchase to take place. However, this will cost the consumers as much or more than if they pooled their money to pay a non-discriminating price. If the consumer is considered to be the building, then a consumer surplus goes to the inhabitants.
It can be proved mathematically that a firm facing a downward sloping demand curve that is convex to the origin will always obtain higher revenues under price discrimination than under a single price strategy. This can also be shown geometrically.
In the top diagram, a single price 
  
    
      (
      P
      )
    
    (P)
   is available to all customers. The amount of revenue is represented by area 
  
    
      
        P
        ,
        A
        ,
        Q
        ,
        O
      
    
    {\displaystyle P,A,Q,O}
  . The consumer surplus is the area above line segment 
  
    
      
        P
        ,
        A
      
    
    {\displaystyle P,A}
   but below the demand curve 
  
    
      (
      D
      )
    
    (D)
  .
With price discrimination, (the bottom diagram), the demand curve is divided into two segments (
  
    
      D
      1
    
    D1
   and 
  
    
      
        D
        2
      
    
    {\displaystyle D2}
  ). A higher price 
  
    
      
        (
        P
        1
        )
      
    
    {\displaystyle (P1)}
   is charged to the low elasticity segment, and a lower price 
  
    
      
        (
        P
        2
        )
      
    
    {\displaystyle (P2)}
   is charged to the high elasticity segment. The total revenue from the first segment is equal to the area 
  
    
      
        P
        1
        ,
        B
        ,
        Q
        1
        ,
        O
      
    
    {\displaystyle P1,B,Q1,O}
  . The total revenue from the second segment is equal to the area 
  
    
      
        E
        ,
        C
        ,
        Q
        2
        ,
        Q
        1
      
    
    {\displaystyle E,C,Q2,Q1}
  . The sum of these areas will always be greater than the area without discrimination assuming the demand curve resembles a rectangular hyperbola with unitary elasticity. The more prices that are introduced, the greater the sum of the revenue areas, and the more of the consumer surplus is captured by the producer.
The above requires both first and second degree price discrimination: the right segment corresponds partly to different people than the left segment, partly to the same people, willing to buy more if the product is cheaper.
It is very useful for the price discriminator to determine the optimum prices in each market segment. This is done in the next diagram where each segment is considered as a separate market with its own demand curve. As usual, the profit maximizing output (Qt) is determined by the intersection of the marginal cost curve (MC) with the marginal revenue curve for the total market (MRt).