Price discrimination is the practice of selling different units of a good or service for different prices. To be able to price discriminate, a monopoly must: Identify and separate different buyer types, sell a product that cannot be resold. Price differences that arise from cost differences are not price discrimination. This chapter provides knowledge of price discrimination. | Price Discrimination Price discrimination is the practice of selling different units of a good or service for different prices. To be able to price discriminate, a monopoly must: Identify and separate different buyer types Sell a product that cannot be resold Price differences that arise from cost differences are not price discrimination. Price discrimination may not be fair, but it is efficient Be sure that the students understand that aside from equity considerations, resources will be allocated more efficiently in a monopoly market under any price discrimination scenario than under a single-price scenario. Price Discrimination Price Discrimination and Consumer Surplus Price discrimination converts consumer surplus into economic profit. A monopoly can discriminate Among units of a good. Quantity discounts are an example. (But quantity discounts that reflect lower costs at higher volumes are not price discrimination.) Among groups of buyers. (Advance purchase and other . | Price Discrimination Price discrimination is the practice of selling different units of a good or service for different prices. To be able to price discriminate, a monopoly must: Identify and separate different buyer types Sell a product that cannot be resold Price differences that arise from cost differences are not price discrimination. Price discrimination may not be fair, but it is efficient Be sure that the students understand that aside from equity considerations, resources will be allocated more efficiently in a monopoly market under any price discrimination scenario than under a single-price scenario. Price Discrimination Price Discrimination and Consumer Surplus Price discrimination converts consumer surplus into economic profit. A monopoly can discriminate Among units of a good. Quantity discounts are an example. (But quantity discounts that reflect lower costs at higher volumes are not price discrimination.) Among groups of buyers. (Advance purchase and other restrictions on airline tickets are an example.) Price Discrimination Profiting by Price Discriminating Figures and show the same market with a single price and price discrimination and show how price discrimination converts consumer surplus into economic profit. Price Discrimination As a single-price monopolist, this firm maximized profit by producing 8 units, where MR = MC and selling them for $1,200 each. Price Discrimination By price discriminating, the firm can increase its profit. In doing so, it converts consumer surplus into economic profit. Price Discrimination Perfect Price Discrimination Perfect price discrimination extracts the entire potential consumer surplus and converts it to economic profit. Price Discrimination With perfect price discrimination: Output increases to the quantity at which price equals marginal cost. Economic profit increases above that earned by a single-price monopoly. Deadweight loss is eliminated. Price Discrimination .
