2. INTRODUCTION
In monopoly, there is a single seller of a product called
monopolist. The monopolist has control over pricing,
demand, and supply decisions, thus, sets prices in a
way, so that maximum profit can be earned.
The monopolist often charges different prices from
different consumers for the same product. This practice
of charging different prices for identical product is
called price discrimination.
3. TYPES OF PRICE DISCRIMINATION
1.PERSONAL
2.GEOGRAPHICAL
3.ON THE BASIS OF USE
4. CONDITIONS FOR PRICE
DISCRIMINATION
1. The market must be a form of imperfect competition
2. Separate market
3. prevention of re-sale
4. Different Elasticity of Demand
5. DEGREES OF PRICE
DISCRIMINATION
1. First Degree Price Discrimination
Also known as perfect price discrimination, first-degree price
discrimination involves charging consumers the maximum price that
they are willing to pay for a good or service. Here, consumer surplus is
entirely captured by the firm. In practice, a consumer’s maximum
willingness to pay is difficult to determine. Therefore, such a pricing
strategy is rarely employed.
6. 2. Second Degree Price Discrimination
Second-degree price discrimination involves charging consumers a
different price for the amount or quantity consumed.
3. Third Degree Price Discrimination
Also known as group price discrimination, third-degree price discrimination
involves charging different prices depending on a particular market
segment or consumer group. It is commonly seen in the pharmaceutical
industry.
7. CONDITIONS UNDERWHICH
PRICE DISCRIMINATION IS
PROFITABLE
There are 2 main conditions under which price
discrimination are profitable :
1. Elasticities of Demand Must be Different
2. Marginal Revenues must be the Same
