Price discrimination means that the producer charges different prices for different consumers for the same goods and service.
Price
Discrimination
Price discrimination means that
the producer charges different prices for different consumers for the same
goods and service. Price discrimination occurs when prices differ even though
costs are same. For example, Doctors charge different fees for different
customers. In case they charge different prices in different markets, people go
to the market where price is low. Then it gets equalized in the long run. There
are various types of price
discrimination:
They are:
1. Personal
Discrimination
2. Place
Discrimination
3. Trade
Discrimination
4. Time
Discrimination
5. Age
Discrimination
6. Sex
Discrimination
7. Location
Discrimination
8. Size
Discrimination
9. Quality
Discrimination
10. Special
Service
11. Use of
services
12. Product
Discrimination
Objectives Of Price Discrimination:
1. To
dispose the surpluses
2. To
develop new market
3. To
Maximize use of unutilized capacity
4. To Earn
monopoly profit
5. To Retain
export market
6. To
Increase the sales
Degrees Of Price
Discrimination:
First Degree Price Discrimination:
Firm charges a different price to
each of its customers. The maximum willingness to pay is fixed as price which
is called as reservation price. In perfect market the difference between demand
and marginal revenue is the profit (for additional unit producing and selling).
Firms do not know the customers willingness, therefore different prices. In
imperfect market it is not possible to price for each and every customer.
Second Degree Discrimination:
Firm charges different prices per
unit for different quantities of the same goods or service. They follow block
pricing method. The units in a particular block will be uniformly priced. The
possible maximum price is charged for some given minimum block of output
purchased by the buyers and then the additional blocks are sold at lower
prices.
Third Degree Discrimination:
Firm segments the customers into
groups with separate demand curves and charges different prices from each
group. In first degree price discrimination, in case of
unit wise differing prices, the second degree price discrimination is a case of
block wise differing prices. In second degree discrimination a part of consumer’s
surplus is captured. But the third degree is commonly used. The firm divides
its total output into many submarkets and sets different prices for its product
in each market in relation to the demand elasticity.
There are two markets I and II
their demand curves D1 and D2 is given. D1 is less elastic and D2 is more
elastic demand curve. The firm distributes OQ1 to market - I at OP1 price and
OQ2 to the market II at OP2 price. Market- I has less elastic demand therefore
higher price is charged.The pricing mechanisms in
different market structures provide a sound theoretical base to understand how
price and output decisions are made. There are several other methods commonly
followed in practice. However, price discrimination does not receive social and
moral justification in the society.
Tags : Managerial Economics - Market Structure
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