Suppose you sign-up for a membership at a video rental store. When you sign-up you are charged a subscription fee, and in addition you will be charged for each video you rent. This is an example of:
A)first-degree price discrimination.
B)second-degree price discrimination.
C)third-degree price discrimination.
D)bundling.

Question

Quizplus · Accepted Answer

This is an example of second-degree price discrimination, where customers are charged different prices based on how much they consume. In this case, the subscription fee is a fixed cost, while the per video charge is a variable cost that depends on how many videos the customer rents. This incentivizes customers to rent more videos to get a lower per-unit price.

Suppose You Sign-Up for a Membership at a Video Rental