ferent groups. First of all, the groups must be accurately identified and the differences between groups must be thought of ahead of time. Children, genders, and senior citizens are easily singled-out by appearance, while military personnel, college students, and other groups must carry some sort of identification. Firms typically will quote the highest prices in advertisements, and then offer discounts to qualified groups. The three basic conditions for price discrimination to be effective are: 1) Consumers can be divided into and identified as groups with different elasticities of demand. 2) The firm can easily and accurately identify each customer. 3) There is not a significant resale market for the good in question. The thought process behind the practice of first degree price discrimination is that the firm has enough accurate information about the consumer, and that products can be sold each time for the maximum amount that the consumer is willing to pay. The two more common examples of first-degree price discrimination is called "price skimming" and "all-or-none offers". Skimming refers to the demand function, as firms take the top of the demand of a given good to maximize profits on the sale. This, of course, requires that the firm know the actual demand for the good that it produces. The firm must divide its customers into distinct, independent groups based upon their respective demands for the good. The firm wants to first sell to the group who will pay the highest price for the new product. It then reduces the cost slightly and sells to another group with only a slightly less demand for the good. This process is copied on numerous occasions until the marginal revenue drops to equal marginal cost. While this example may seem similar to other examples of price discrimination, you should remember that the most significant difference here is that there are a virtually limitless number of possible prices that, if charges correctl...
