Price discrimination can take place only ina)Perfect competitionb)Oligopolyc)Monopolistic competitiond)MonopolyCorrect answer is option 'D'. Can you explain this answer?

Question

Answer

Monopoly....                        ...          A discriminating monopoly is a single entity that charges different prices—typically, those that are not associated with the cost to provide the product or service—for its products or services for different consumers. Non-discriminating monopolies, on the other hand, do not engage in such a practice

Answer

Monopoly

Answer

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. ... This practice of charging different prices for identical product is called price discrimination.

Answer

Price Discrimination
Price discrimination refers to the practice of charging different prices for the same product or service to different customers. It can be seen as a strategy used by firms to increase their profits by segmenting the market and extracting maximum consumer surplus.
Types of Market Structures
There are different types of market structures, each characterized by a different level of competition. These include perfect competition, monopolistic competition, oligopoly, and monopoly.
Conditions for Price Discrimination
Price discrimination can only take place in specific market structures where certain conditions are met. Let's explore these conditions in relation to the different market structures:
1. Perfect Competition: In a perfectly competitive market, there are many buyers and sellers of a homogeneous product, and no single firm has control over the market price. Price discrimination is not possible in perfect competition as firms are price takers and cannot charge different prices without losing customers.
2. Monopolistic Competition: Monopolistic competition is characterized by a large number of firms selling differentiated products. Each firm has some control over the price it charges. While price discrimination is theoretically possible in monopolistic competition, it is not commonly observed due to the ease of entry and competition from similar products.
3. Oligopoly: Oligopoly refers to a market structure where a few large firms dominate the industry. These firms have some degree of market power and can potentially engage in price discrimination. However, due to the strategic interdependence between firms, price discrimination may be difficult to implement effectively.
4. Monopoly: A monopoly exists when a single firm controls the entire market. In this case, the firm has significant market power and can engage in price discrimination. A monopolist can segment the market based on factors such as location, time, or customer characteristics and charge different prices to different buyers.
Conclusion
In summary, price discrimination is only feasible in market structures where firms have some degree of market power and control over the pricing. While it is theoretically possible in monopolistic competition and oligopoly, it is most commonly observed in monopolies where a single firm dominates the market. Therefore, the correct answer is D: Monopoly.

Answer

Price Discrimination and Market Structure

Price discrimination refers to the practice of charging different prices to different customers for the same or similar products. It is a strategy employed by firms to maximize their profits by extracting consumer surplus and capturing a larger share of the market.

Price discrimination can only take place in a monopoly market structure, where there is a single seller and no close substitutes for the product. In this scenario, the monopolist has control over the market and can set prices according to the willingness to pay of different customers.

Explanation:

1. Perfect Competition:
In perfect competition, there are many small firms competing against each other, and no individual firm has control over the market. In such a market structure, price discrimination is not possible because firms are price takers and have no influence over market prices.

2. Oligopoly:
In an oligopoly market structure, there are a few large firms that dominate the market. These firms often engage in strategic behavior and may compete on factors other than price, such as advertising, product differentiation, or innovation. Price discrimination may occur in an oligopoly to some extent, but it is not as prevalent as in a monopoly.

3. Monopolistic Competition:
In monopolistic competition, there are many firms selling differentiated products that are close substitutes for each other. Each firm has some degree of market power, but it is limited due to the presence of close substitutes. Price discrimination is unlikely to occur in monopolistic competition as firms compete on product differentiation rather than price.

4. Monopoly:
In a monopoly market structure, there is a single seller that has complete control over the market. The monopolist can set prices based on the elasticity of demand for different groups of customers. Price discrimination is more likely to occur in a monopoly as the monopolist can segment the market and charge different prices to different customer groups based on their willingness to pay.

Conclusion:

Price discrimination can only take place in a monopoly market structure where there is a single seller and no close substitutes for the product. In this scenario, the monopolist has the ability to set prices based on the willingness to pay of different customers, thereby maximizing profits. In other market structures such as perfect competition, oligopoly, and monopolistic competition, price discrimination is either not possible or less prevalent.

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