Price Discrimination

Price discrimination is a pricing strategy where the same product is sold at different prices to different customers based on their willingness to pay. This strategy is used by businesses to maximize profits by charging higher prices to customers who are willing to pay more and lower prices to those who are not.

Conditions for Price Discrimination

Price discrimination is possible only under certain conditions. Let us see what these conditions are:

Seller is Alone

Price discrimination can only occur when the seller has a monopoly or is the sole supplier of a product. If there are other sellers in the market, customers will have the option to buy from them at a lower price, and the seller will lose customers.

Goods are Homogeneous

Price discrimination is possible only when the goods sold are homogeneous, which means they are identical in quality and features. If the goods are not homogeneous, customers will be willing to pay different prices based on the quality or features of the product.

Market is not Segmented

Price discrimination is not possible if the market is segmented. A segmented market is one where customers are divided into different groups based on their willingness to pay. If a seller charges different prices to different segments, customers will switch to the segment where the price is lower, and the seller will lose customers.

Conclusion

In conclusion, price discrimination is a pricing strategy that can only occur under specific conditions. The seller must be alone in the market, the goods must be homogeneous, and the market must not be segmented. If these conditions are not met, price discrimination is not possible, and the seller will have to charge the same price to all customers.