First-Degree Price Discrimination

First-degree (perfect) price discrimination extracts the entire Consumer Surplus from each consumer. The constructive recipe is a Two-Part Tariff with $p = MC$ (so consumption is socially efficient) and a fixed entry fee $T = CS_i$ equal to the consumer's surplus at $p = MC$.

When to use

Reach for first-degree PD as the upper benchmark on the seller's profit: any other pricing scheme leaves consumer surplus on the table. The real-world approximations are personalised pricing (think gym membership tailored to one consumer), bargained transactions, and full disclosure of willingness-to-pay. With multiple consumer types and types unobservable, first-degree PD is infeasible — the firm must fall back on Second-Degree Price Discrimination subject to Incentive Compatibility constraints.