Price Discrimination vs Product Differentiation

Price discrimination is the practice of charging different prices to different consumers for the same product based on their willingness to pay.

To engage in price discrimination, a firm must have market power, be able to identify different consumer groups, and prevent resale between groups. It increases profits by capturing more consumer surplus.

Product differentiation is the process by which firms make their products distinct from those of competitors through features, branding, or quality.

This allows firms to gain some control over price and reduce price elasticity of demand. It is a key feature of monopolistic competition and oligopoly, and can include advertising, packaging, or unique design elements.