First-degree price discrimination occurs when a company charges each individual customer the maximum price they are willing to pay for a product or service. By doing this, the company takes all the value that would have gone to the consumer (known as consumer surplus) and adds it to their own profit.

Key characteristics include:

• The company must have detailed knowledge of exactly how much each person is willing to pay.
• It is most common in scenarios like auctions or custom, bespoke services.
• While it maximizes the company’s profit, it is considered efficient because the total amount of goods produced is the same as in a perfectly competitive market.