Price Discrimination

Price discrimination is the economic term for selling the same product at different prices to different customers based on their willingness to pay. In markets where the marginal cost of production is zero or near zero — which is to say, in information markets — price discrimination is not a marginal refinement of pricing strategy. It is the dominant value-capture mechanism, because uniform pricing cannot simultaneously extract value from customers with high willingness to pay and maintain accessibility for customers with low willingness to pay. Varian studied price discrimination extensively and identified versioning as its primary implementation in information markets: the deliberate creation of product variants at different price points that allow customers to self-select based on their willingness to pay.