Second-Degree Price Discrimination: Product Versioning and Bundling
Design product versions and bundles that segment customers by willingness to pay without explicit price differentiation.
Second-degree discrimination achieves market segmentation through product design rather than overt price differences. Customers self-select into tiers based on their needs and willingness to pay. Common mechanisms include tiered service levels (cloud storage: 5GB free, 50GB for $2/month, 1TB for $10/month), feature limitations (software with and without advanced tools), or bundling (basic, professional, enterprise packages). The strategy requires careful design: lower tiers must be unattractive enough that high-value customers upgrade, but attractive enough to convert price-sensitive customers. Quality or feature degradation must align with actual willingness to pay differences. This is legally safer than explicit discrimination and avoids customer resentment…
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