Price and Output determination Under Price Discrimination

Kamal Singh Lecturer in Economics GCCBA-42 , Chandigarh

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

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.