Discuss how a business may practice 3rd degree price discrimination

3rd degree price discrimination is when a firm charges different prices to different groups of consumers. This is done in order to maximise revenue by charging a higher price to consumers who are willing to pay more, whilst not deterring those willing to pay less. This is achieved by splitting the market into segments, for example if a cinema were to change ticket prices depending on age (e.g. under 18s, Students, Adults, Concessions). As a result the firm is able to charge a higher price to those who have less elastic demand, and thus, will not significantly reduce demand following a change in price. In this case, a higher price would be charged to adults. They have less elastic demand as a cinema ticket is a smaller proportion of their income than, say, a student. The firm is then able to charge them a higher price, whilst still keeping their product accessible to students and children who cannot afford high prices. However in order to be able to do this, the firm must be able to identify different market segments, and the associated elasticises of demand. If they fail to do this, they would increase price for a group that have elastic demand, causing demand to fall by more than the change in price, reducing revenue. Secondly, they must also be able to prevent resale. This is because otherwise those who are able to access the product at a lower price would act as 3rd party sellers, selling their cheap products on at a subsidised rate, again reducing firm revenue. The firm could, however, mitigate this by IDing at the point of entry in the case of the cinema for example.