Third-degree price discrimination occurs when a business charges different prices to distinct groups of consumers for the same product or service. These groups are identified based on observable characteristics, such as age, student status, or geographic location.

Key aspects include:

• Different Price Sensitivity: Companies target groups based on their price elasticity of demand. Those who are less sensitive to price changes are charged more, while those who are more sensitive pay less.
• Market Segmentation: The firm must be able to divide the market and effectively prevent resale of the product between the different groups.
• Examples: Common practices include student discounts, senior citizen rates, and different prices for peak versus off-peak travel or electricity.

This strategy is the most common form of price discrimination. It allows a firm to increase its total profit by successfully capturing more consumer surplus from different types of buyers.