price discrimination ready

8/2/2019 Price Discrimination Ready

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SESSION 24RA (DEEPTI AHUJA)


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WHAT IS PRICE DISCRIMINATION ? EQUILIBRIUM OF A DISCRIMINATING

MONOPOLIST

TYPES OF DISCRIMINATION PRICE DISCRIMINATION AND THE EXISTENCE

OF THE INDUSTRY

MONOPSONY

BILATERAL MONOPOLY


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Price discrimination exists when the sameproduct is sold at different prices to differentbuyers . The product is basically the same ,produced at the same cost , which is sold at

different prices depending on the preferenceof the buyers , their income , their location.


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The market must be divided into sub marketswith different price elasticities

There must be effective separation of the submarkets so that no reselling can take placefrom a low price market to a high pricemarket


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DISCRIMINATION OWING TO CONSUMERS

PECULARITIES

DISCRIMINATION OWING TO NAYURE OF THE

PRODUCTDISCRIMINATION OWING TO THE DISTANCE

AND FRONTIER BARRIERS


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Condition of profitable price discrimination isMR1 = MR2=MC

The total cost function of monopolist is same

MC Price discrimination can be carried on

profitably only if elasticities are different intwo markets

MR in each market must be changing lessrapidly than MC for a output as a whole


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P

Q1

P1

0 AR1MR1qi

AR MR

q2

p2

AR2

MR2Q2

AR

MR MCMR

E

Qq

MC

P*


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PARMR

0

p2

AR1MR1

MC

AR2=MR2

p1

E

E1

q1 q2 Q


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FIRST DEGREE DISCRIMINATION extreme form ofdiscrimination and is known as perfect

discrimination.

HERE MC IS ASSUMED TO BE CONSTANTP

Q

DD

MC =AC

0

p

p3

p2

p1

q1q2 q3

e


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Imperfect form of discrimination

Instead of setting different prices it involvespricing based on the quantities of output

purchased by individual consumersp

q

p1

p2

p3

q1 q20


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Most common form of price discrimination Involves separating consumers or markets in

terms of their price elasticity of demand

Discrimination can be based on the nature ofuse

Market can be segmented based on personalcharacteristics of consumers

Often occurs in the markets that aregeographically separated


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pp p

q q q

p1

p2

MR1

D1

q10

q2

MR2D2 D

MR

Q


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Doctors often charge rich patients more than poorpatients They may have one price for those with insurance and

another price for those without insurance

Movies in the evening cost more than those in the

early afternoon Senior citizen, youth, and student discounts New and used cars Youth fairs on airlines Evening meals in restaurants often cost more than

the same meal at lunch


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P

C

Q0 q1 q2 Q

p1

p2

D1

D2

D LAC


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Consist of a single seller and single buyer Equilibrium will not be determined by

traditional tools of demand and supply

Economic analysis can only define the range

within which price will eventually be settled Precise level of price and quantity will be

defined by non economic factors likebargaining power , skill and other strategies

of firm Under such conditions analysis lead to

indeterminacy


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p

c

q

ME

MC

DD

e1

e2

a

b

MR

q1q2

p1

p2

P

Q

PRICE WILL BE SET WITHINTHE RANGE FROM p1-p2


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price discrimination ready

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