On the Teaching of Price Discrimination in Block Pricing: A Refinement

Abstract In many textbooks, an important assumption difference between the standard picture for block pricing and the intuitive discussions on this pricing scheme is often ignored. This practice leads the students to misunderstand this picture as an illustration for price discrimination against heterogeneous buyers. In this article, I analyze how some textbook narratives can lead to this misinterpretation. Then, I provide a simple example that shows how block pricing discriminates buyers with heterogeneous demands. A real life example as applied to the transportation rates of natural gas for block pricing is also provided and discussed.