What is price discrimination?

Price discrimination refers to the practice of charging different prices to different consumers for the same product or service, which is precisely what option C describes. This strategy allows sellers to maximize their revenue by capturing consumer surplus—the difference between what consumers are willing to pay and the price they actually pay.

By differentiating prices, businesses can cater to different segments of the market. For example, they might charge higher prices to consumers who have a greater willingness to pay while offering discounts to price-sensitive customers. This method can lead to increased sales and profitability, as it allows firms to serve a broader range of customers who may not all be willing or able to pay the same price for the same good or service.

The other choices do not fully capture the essence of price discrimination. Charging different prices based on production costs focuses on input costs rather than customer willingness to pay; offering discounts for customer loyalty relates to incentives rather than price differentiation among various consumers; and setting prices based only on market demand does not take into account individual consumer valuation, which is integral to the concept of price discrimination.