What is Price Discrimination
While discussing ‘price determination under monopoly, it was assumed that a monopolist charges only one price for his product from all the customers in the market. But it often so happens that a monopolist, by virtue of his monopolistic position, may manage to sell the same commodity at different prices to different customers or in different markets. The 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”.
Types of Price Discrimination
Price discrimination may be of various types. It may either be (i) personal (ii) trade discrimination (iii) local discrimination.
(i) Price discrimination is personal, when separate’ price is charged from each buyer according to the intensity of his desire or according to the size of his pocket. For instance, a doctor may charge Rs.20000 from a rich person for an eye operation and Rs. 500 only from a poor man for the similar operation.
(ii) Trade discrimination 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.
(iii) Place discrimination occurs when a monopolist charges different prices for the same commodity at different places. This type of discrimination is called dumping. In Economics, a monopolist sells the same commodity at a higher price in one market and at a lower price in the other. Dumping may be undertaken due to several reasons, *(i) A monopolist may resort to dumping in order to dispose off the accumulated stock or (ii) he may dump the commodity with a desire to capture the foreign market, (iii) Dumping may also be done to drive the competitors out of the market; (iv) The motive may also be to reap the economies of large scale production, etc.
Related Economics Topics
- Degrees of Price Discrimination
- Purpose of price discrimination
- Conditions of price discrimination
- Price And Output Determination Under Discriminating Monopoly