Monopoly (Part 3) PRICE DISCRIMINATION.

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Presentation transcript:

Monopoly (Part 3) PRICE DISCRIMINATION

Conditions of Price Discrimination Price discrimination is the business practice of selling the same good at different prices to different buyers. Price discrimination occurs when the seller charges different prices for the product it sells, and the price differences do not reflect costs. Conditions of Price Discrimination: The seller must exercise some control over price; it must be a price searcher. The seller must be able to distinguish among buyers who would be willing to pay different prices. It must be impossible or too costly for one buyer to resell the good at other buyers. The possibility of arbitrage, or “buying low and selling high” must not exist.

Price Discrimination Perfect Price Discrimination: sells each unit separately and charges the highest price each consumer would be willing to pay for the product. Second Degree Discrimination: it charges a uniform price per unit for one specific quantity, a lower price for an additional quantity, and so on. Third Degree Discrimination: it charges a different price in different markets or charges a different price to different segments of the buying population.