Price and Output determination
Under Price Discrimination
Kamal Singh
Lecturer in Economics
GCCBA-42 , Chandigarh
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Meaning of Discriminating Monopoly
Types Of Discriminating Monopoly
Degrees of Discriminating Monopoly
Conditions for Discriminating Monopoly
Price and Output determination
Monopoly Price Discrimination:
• Price Discrimination:The practice on the part of
the monopolist to sell the identical goods at the
same time to different buyers at different prices
when the price difference is not Justified by
difference in costs in called price discrimination.
In the words of Mrs. Joan Robinson:
"Price discrimination is the act of selling the same
article produced under single control at a
different prices to the different buyers".
Types of Price Discrimination
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Price discrimination may be of various types. It may either be (i) personal (ii) trade
discrimination (iii) local discrimination.
(1) Price discrimination. It is persona!, when separate price is charged from each
buyer according to the intensity of his desire or according to the size of his pocket.
(2) Trade discrimination. It may take place when a monopolist charges different
prices according to the uses to which the commodity is put. For example, an
electricity company may charge low rate for electric current used in an industrial
concern than for the electricity used for the domestic purpose.
(3) Place discrimination. It occurs when a monopolist charges different prices for
the same commodity at different places. This type of discrimination is called, a
monopolist sells the same commodity at a higher price in one market dumping In
Economicsand at a lower price in the other. Dumping may be undertaken due to
several reasons, (a) a monopolist may resort to dumping in order to dispose off the
accumulated stock or (b) he may, dump the commodity with a desire to capture
the foreign market, (c) dumping may also be done to drive the competitors out of
the market, (d) the motive may also be to reap. the economies of large scale
production, etc.
Degrees of Price Discrimination:
• There are three main degrees of price
discrimination:
(1) First degree price discrimination
(2) Second degree price discrimination
(3) Third degree price discrimination.
• ) First degree price discrimination. The monopolist charges a different
price equal to the maximum amount for each unit of the commodity from
each consumer separately. The price of each unit is equal to its demand
price so that the consumer is unable to enjoy any consumer surplus.
• (2) Second degree price discrimination. Here the monopolist divides his
market into different groups of customers and charges each group the
highest price which the marginal consumer belonging to that group is
willing to pay. The railway, airlines etc., charge the fares from customers in
this way.
• (3) Third degree price discrimination. In the third degree price
discrimination, the monopolist divides the entire market into a few submarkets and charges different prices for the same commodity in different
sub-markets. The division here is among classes of consumers and not
among individual consumers. For example, movie theaters, railways,
typically charge lower prices to senior citizens, students etc.
Condition Of Price Discrimination
• (1) Segregation by price. There should be no possibility, of transferring a
unit of commodity supplied from the low priced to the high priced market.
For instance, a rich patient cannot send a poor man to the doctor for his
medical cheek up at a cheaper rate for him.
• (2) Segregation by market. Another essential characteristic of price
discrimination is that there should be no possibility of transferring one
unit of demand from the high priced to the low priced market. For
instance, a banana market is divided on the basis of wealth. The poor are
supplied bananas at a concessional rate in one market. The rich people
will not like to become poor in order to get the commodity at a cheaper
rate.
• (3) Segregation by demand. Price discrimination can be possible if there is
difference in the elasticity of demand in different markets. If the demand
for a certain commodity is elastic in a particular market, the monopolist
will charge lower prices. But if the demand is inelastic, the monopolist will
fix higher prices for his product.
Price and Output Determination
Under Discrimination Monopoly
• Conditions:
• (1) Monopoly power. The seller of a good must be
a monopolist.
• (2) Segregation of market. The monopolist must
be able to segregate buyers into separate classes
with different price elasticities.
• (3) No reselling. There should be no possibility of
reselling the good from a tow price market to a
high price market.