Price Discrimination in Monopoly Competition

Definition of Price Discrimination
Price discrimination is a strategy of charging different prices from different customers for the same product or service. It is a common phenomenon in monopolistic competition and monopoly where firms have market power.

Monopoly Competition
In a monopoly, there is only one seller of a product or service in the market. Due to the lack of competition, the monopolist has the power to set the price of the product or service. The monopolist can use this power to charge different prices from different customers.

Conditions for Price Discrimination
For price discrimination to be successful, the following conditions must be met:

- The monopolist must have market power.
- The monopolist must be able to distinguish between different customer groups.
- The monopolist must be able to prevent resale of the product or service.

Types of Price Discrimination
Price discrimination can be of the following types:

- First Degree Price Discrimination: This is when the monopolist charges each customer the maximum price they are willing to pay for the product or service. This type of price discrimination is rare.
- Second Degree Price Discrimination: This is when the monopolist charges different prices based on the quantity of the product or service bought. For example, a bulk discount.
- Third Degree Price Discrimination: This is when the monopolist charges different prices based on the characteristics of the customer group. For example, a student discount.

Advantages and Disadvantages of Price Discrimination
Advantages:
- Increases revenue for the monopolist.
- Allows the monopolist to reach a wider customer base.
- Can be used to price discriminate against price-sensitive customers.

Disadvantages:
- Can lead to customer dissatisfaction and loss of goodwill.
- Can lead to regulatory intervention and legal action.
- Can lead to a reduction in consumer surplus.

Conclusion
In conclusion, price discrimination is a common feature of monopoly competition due to the market power of the monopolist. Price discrimination can be of different types and has its advantages and disadvantages.