Definition and Conditions of Price Discrimination

Price Discrimination

Price discrimination means the practice of selling the same commodity at different prices to different buyers. If the monopolist charges different prices from different consumers for the same commodity, it is called price discrimination or discriminating monopoly.

Definition

Price discrimination may be defined as 'the sale of technically similar products at prices which are not proportional to marginal cost'. For example, all cinema theatres charge different prices for different classes of people.

Conditions of Price Discrimination

Price discrimination is possible only if the following conditions are fulfilled.

1.        The demand must not be transferable from the high priced market to the low priced market. If rich people do not buy the high-priced deluxe edition of the book, but wait for the low-priced popular edition to come out, then personal discrimination will fail.

2.        The monopolist should keep the two markets or different markets separate so that the commodity will not be moving from one market to the other market. If it is possible to buy the product in the cheaper market of the monopolist and sell it in the dearer market, there can never be two prices for the commodity. If the industrial buyer of cheap electricity uses it for domestic consumption, then trade discrimination will fail.

The above two conditions are essential to adopt price discrimination.