Date: July 20, 2025
I’ve seen a few people make the claim that price discrimination (i.e., charging different prices to different people based on their assessed willingness to pay) necessarily decreases consumer surplus (the gains from trade accruing to consumers). While this is usually true, there are plenty of cases where (imperfect) price discrimination is actually good for consumers—even the ones being discriminated against.
Suppose I am deciding how to price a textbook. Each copy will cost me $10 to print, and there are two markets where I can sell it:
If I am unable to charge different prices to these different populations, my profit-maximizing price is $30, and I make 2000 * ($30 - $10) = $40,000. At this price point, the book is out of reach for the Indian market; their willingness to pay is low enough that they don’t even enter into the calculation.
Now suppose I am able to produce an “international edition” of my textbook that is only available for sale in India.[1]
I would price it at $15, which maximizes my profit in the Indian market. Americans keep paying the same $30 they were before, but now 2000 Indians buy my book too. My new profit is $40,000 from the domestic edition plus 2000 * ($15 - $10) = $10,000 from sales of the international edition.
Look what happened here: price discrimination enabled a Pareto improvement where I make more money and twice as many people can read my book, while no one is worse off than before. Both producer and consumer surplus increased.
Likely there are economies of scale that make the unit cost of printing 4000 books cheaper than for a run of 2000. Some of my savings will go to consumers in equilibrium, so even the richer American customers are better off.
All this is assuming I have already written my book and am just picking a price to sell it. If I haven’t, I might decide it’s not worth my time to write it unless I can make $50,000. Then without price discrimination, the book would never get written at all!
[1] Restrictions on resale aren’t enforceable under US law, at least in the case of textbooks. And in my view you have no moral obligation to help the seller price discriminate against you.