The more a firm knows about demand, the easier it become for it to do price discrimination.
Price discrimination is a sales strategy in which the seller charges different prices for the same product or service based on what the seller believes the customer will agree to. In pure price discrimination, the seller charges each customer the highest possible price. In more common forms of price discrimination, the seller divides customers into groups based on certain characteristics and charges a different price to each group.
Price discrimination is most valuable when the profit earned from separating the markets is greater than the profit earned from keeping the markets combined. The relative elasticities of demand in the submarkets determine whether price discrimination works and how long different groups are willing to pay different prices for the same product.
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