What is the purpose of price discrimination?
The purpose of price discrimination is generally to capture the market’s consumer surplus. This surplus arises because, in a market with a single clearing price, some customers (the very low price elasticity segment) would have been prepared to pay more than the single market price.
Why do companies practice second degree price discrimination?
Companies practice second-degree price discrimination by charging different prices based on the quantity demanded. Companies generally offer special prices for consumers who buy in bulk. For example, communications companies may offer special bulk discounts for buying a variety of their products.
Why do monopolists practice price discrimination?
ADVERTISEMENTS: In monopoly, there is a single seller of a product called monopolist. The monopolist has control over pricing, demand, and supply decisions, thus, sets prices in a way, so that maximum profit can be earned. This practice of charging different prices for identical product is called price discrimination.
What are examples of price discrimination?
Examples of forms of price discrimination include coupons, age discounts, occupational discounts, retail incentives, gender based pricing, financial aid, and haggling.
What is the degree of price discrimination?
First-degree price discrimination involves selling a product at the exact price that each customer is willing to pay. Second-degree price discrimination targets groups of consumers with lower prices made possible through bulk buying.
Why is price discrimination difficult?
First, it is difficult to charge different prices to different consumers. In many cases, it is illegal to charge different prices to different people. Second, it is difficult and costly to elicit reservation prices from every consumer.
What are the disadvantages of price discrimination?
Disadvantages of Price Discrimination
- Higher prices for some. Under price discrimination, some consumers will end up paying higher prices (e.g. people who have to travel at busy times).
- Decline in consumer surplus.
- Potentially unfair.
- Administration costs.
- Predatory pricing.
Is price discrimination Good or bad?
This naturally increases the company’s profit because it can charge customers as much as their willingness to pay, which may be higher than a previously set uniform price. Moreover, contradictory as it may seem, price discrimination is not necessarily harmful to consumers.
Is price discrimination always legal?
The truth is, it’s usually legal. Price discrimination is illegal if it’s done on the basis of race, religion, nationality, or gender, or if it is in violation of antitrust or price-fixing laws.
Is price discrimination ethical?
Price discrimination is the practice of charging different customers different prices for the same product. It concludes that price discrimination is not inherently unfair. The article also contends that even when conditions i) and/or ii) do not obtain, price discrimination is not necessarily unethical.
What is illegal price discrimination?
Price discrimination is the practice of charging different persons different prices for the same goods or services. Price discrimination is made illegal under the Sherman Antitrust Act. Merely charging different prices to different customers is not illegal, when there is no intent to harm competitors.
What is unethical pricing?
Put yourself in your customers’ shoes if you’re ever in doubt whether a price is ethical or unethical. In most of these cases, unethical pricing occurs when you’re pricing for yourself—either to hurt the competition, skirt a law or regulation, or discriminate against or deceive consumers.