Price Discrimination
PRICE DISCRIMINATION
What is Price Discrimination;
Price discrimination is a pricing tactic that charges consumers different prices for the same product or service. In other worlds, price discrimination exists, when identical product or service transacted at different prices from the same supplier.
Price discrimination allows a company to earn higher profits than standard pricing because it allows firms to capture every last pence of revenue available from each of its customers. While perfect price discrimination is illegal, when the optimal price is set for every customer, imperfect price discrimination exists. For example, bus companies usually charge four different prices for a ride. The prices target various age groups, including youth, students, adults and seniors. The prices fluctuate with the expected income of each age bracket, with the highest charge goes to the adult population.
A much less obvious form of price discrimination is that of periodic sales in stores, which serve to discriminate between informed and patient buyers and the rest. Price-matching offers (in which a store promises to match any competitor's price) also play a similar role.
It must be remembered that the main aim of price discrimination is to increase the total revenue and hopefully the profits of the supplier.
Conditions for Price Discrimination;
The opportunity to engage in price discrimination is not readily available to all sellers. This is why all companies can not practise price discrimination. In fact, it will only be possible if all three of the following circumstances apply.
1. The firm must operate in imperfect competition and a firm must have an element of monopoly power; The Seller must be a monopolist or at least, must possess some degree of monopoly power that is, ability to control output and price. The firm in perfect competition can not discriminate the price. If it charges any of its customers a higher price than the price set by the market, it will lose
What is Price Discrimination;
Price discrimination is a pricing tactic that charges consumers different prices for the same product or service. In other worlds, price discrimination exists, when identical product or service transacted at different prices from the same supplier.
Price discrimination allows a company to earn higher profits than standard pricing because it allows firms to capture every last pence of revenue available from each of its customers. While perfect price discrimination is illegal, when the optimal price is set for every customer, imperfect price discrimination exists. For example, bus companies usually charge four different prices for a ride. The prices target various age groups, including youth, students, adults and seniors. The prices fluctuate with the expected income of each age bracket, with the highest charge goes to the adult population.
A much less obvious form of price discrimination is that of periodic sales in stores, which serve to discriminate between informed and patient buyers and the rest. Price-matching offers (in which a store promises to match any competitor's price) also play a similar role.
It must be remembered that the main aim of price discrimination is to increase the total revenue and hopefully the profits of the supplier.
Conditions for Price Discrimination;
The opportunity to engage in price discrimination is not readily available to all sellers. This is why all companies can not practise price discrimination. In fact, it will only be possible if all three of the following circumstances apply.
1. The firm must operate in imperfect competition and a firm must have an element of monopoly power; The Seller must be a monopolist or at least, must possess some degree of monopoly power that is, ability to control output and price. The firm in perfect competition can not discriminate the price. If it charges any of its customers a higher price than the price set by the market, it will lose
References: Anon, Tutor2, available at http://www.economicshelp.org/microessays/pd/price-discrimination.html [20 February 2008] Anon, Price Discrimination, Harvard Education Publishing Group, Available from http://www.law.harvard.edu/faculty/tfisher/music/PriceDiscrimination.html accessed at [18 February 2008] Begg, Fischer & Dornbusch (2005) Economics 8th Edition, McGraw Hill M. E. Levine. Price discrimination without market power. Yale Journal on Regulation, 19:1{36, Winter 2002. Preliminary version available at http://www.law.harvard.edu/programs/olin center/papers/276 levine.htmi accessed at [20 February 2008] P. Huber. Two cheers for price discrimination. Forbes, September 27, 1993 R. B. Ekelund. Price discrimination and product differentiation in economic theory: an early analysis. Quarterly Journal of Economics, 84:268{278, 1970. Sloman, J., (2006) Economics, 6th Edition, FT Prentice