Price and Output determination Under Price Discrimination

1
Price and Output determination Under Price
Discrimination

• Kamal Singh
• Lecturer in Economics
• GCCBA-42 , Chandigarh

2

• Meaning of Discriminating Monopoly
• Types Of Discriminating Monopoly
• Degrees of Discriminating Monopoly
• Conditions for Discriminating Monopoly
• Price and Output determination

3
Monopoly Price Discrimination

• Price DiscriminationThe 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".

4
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.    

5
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.
•  

6

• ) 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 sub-markets
  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.

7
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.

8
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.

9
(No Transcript)