Differential Pricing

The term differential pricing is often used as an alternative to price discrimination, but differential pricing may also involve a higher degree of product differentiation.

Price discrimination usually involves different prices for identical, or almost identical, products. Differential pricing may also involve product differentiation, which allows for greater variety in the products being sold and the prices being offered.

DVDs illustrate both concepts and the difference between them. A single store will commonly sell the exact same version of a DVD at two completely different prices just feet away from each other based on a neat trick that streams buyers according to how they value the product. This is is an example of price discrimination – the exact same product being sold at different prices.

It is also common for such stores to sell different, sometimes very subtly different, versions of the same disk at different prices. One disk product might just include the Blu-Ray version, another just the DVD. A third might include both formats, while others might include a digital copy, special packaging and/or collectibles.

It's the same movie, but different versions, and that introduction of product differentiation makes it differential pricing rather than pure price discrimination.