Perfect price discrimination

Price discrimination relates to the practice of charging different prices for different units of the same commodity.It is a method of pricing adopted by the monopolist in order to earn abnormal profits.
There are three types of Price discrimination :-
1) Perfect price discrimination : 1st degree
2) Price discrimination by self selection : 2nd Degree
3) Market/Segment based price discrimination : 3rd degree
In this blog we will look into the perfect price discrimination or 1st degree price discrimination.

Have you ever shopped during eBay auction sales. How do they sell ? What is the strategy behind the same. I will explain the same with the help of my personal experience. While shopping during Diwali season I came across eBay auction sales. While exploring the site I found a product with its auction price stated as 600. I placed the bid for the same at Rs 900, and there was another customer who placed the bid at Rs 800 ( the customers at this point are unaware of each other's bidding amount), owing to higher bid I won the sale and product was shipped to me along with a refund of Rs 100 (900-800). What is the strategy behind this ? The answer is first degree price discrimination. During auction sales eBay sets up a reservation price (maximum price at which they will sell the product), and they don't sell anything below the reservation price. Now in the above case eBay has set up it's reservation price as Rs 600 for the respective product and picked up the customer with the highest bid and provided the product. Not only did they provide the product but also refunded back the surplus between the highest and the second highest bid amount. By doing so they earned a profit of 200 (800-600) but also added value to their goodwill. This is an example which shows how companies benefit through perfect price discrimination during auctions.