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Conditions necessary for price discrimination

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Philly Fitzpatrick
Philly Fitzpatrick

Price discrimination requires (1) monopoly power through barriers to entry that prevent competition from other firms, and (2) distinct and separate markets where goods cannot be resold across markets to arbitrage price differences, otherwise a monopolist would be unable to set different prices in different markets.

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Conditions necessary for Price Discrimination 1 Element of monopoly power. There must be some barriers to entry to the market. If this were not so, new firms could supply a similar good on the higher price market, at a lower price. The monopolist would then have to abandon his discriminatory pricing policy, or lower the price charged. 2 Distinct and separate markets. The markets must be distinct and separate. Consumers in the market where price is relatively low must not be able to resell to consumers in the high priced market. Otherwise the transfer of goods purchased in the lower priced market to the higher priced market would make the charging of different prices in the two markets impossible.
Conditions necessary for price discrimination

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Conditions necessary for price discrimination

  • 1. Conditions necessary for Price Discrimination 1 Element of monopoly power. There must be some barriers to entry to the market. If this were not so, new firms could supply a similar good on the higher price market, at a lower price. The monopolist would then have to abandon his discriminatory pricing policy, or lower the price charged. 2 Distinct and separate markets. The markets must be distinct and separate. Consumers in the market where price is relatively low must not be able to resell to consumers in the high priced market. Otherwise the transfer of goods purchased in the lower priced market to the higher priced market would make the charging of different prices in the two markets impossible.