Price Discrimination and its applicability

Definition of Price Discrimination

Price discrimination refers to a pricing strategy that involves charging different prices for the same product or service to different customers or groups of customers based on their willingness to pay or other demographic or behavioral characteristics.

Applicability of Price Discrimination

Price discrimination is possible only in a market where there is a monopoly situation. In a perfectly competitive market, there is no scope for price discrimination as firms have to accept the price determined by the market. In monopolistic competition, firms have some degree of market power, but the market is too fragmented and heterogeneous to allow for effective price discrimination. Oligopoly, on the other hand, is characterized by a small number of large firms with significant market power, but collusion or coordination among these firms makes it difficult to practice price discrimination.

Price Discrimination and Monopoly

In a monopoly situation, the firm is the sole supplier of a product or service in the market, and hence, it has complete control over the price. This gives the firm the ability to practice price discrimination as it can charge different prices to different customers based on their willingness to pay. The firm can identify different customer groups and charge each group a price that maximizes its profits.

Examples of Price Discrimination in Monopoly

Examples of price discrimination in monopoly include:

- Charging different prices for the same product or service based on the time of purchase, such as higher prices during peak hours or seasons.
- Offering discounts or special deals to certain customer groups, such as students, senior citizens, or frequent buyers.
- Charging different prices for different versions or packages of the same product or service, such as basic, standard, and premium versions.

Conclusion

In conclusion, price discrimination is a pricing strategy that involves charging different prices for the same product or service to different customers or groups of customers based on their willingness to pay or other demographic or behavioral characteristics. It is possible only in a market where there is a monopoly situation, as the firm has complete control over the price and can identify different customer groups and charge each group a price that maximizes its profits.

The answer is Monopoly because in a monopoly market consumers does not have other options or substitute that will satisfy them with the same level of satisfaction. In such a case Monopoly market can charge different price from different customers which leads to price discrimination.
for example , a single shop in a village, the shopkeeper can charge different prices from different villagers as villagers do not have other option to purchase the same thing.