Price Discrimination: Kind, Effects and Evils | Monopoly

Let us make an in-depth study of Price Discrimination under Monopoly:-

1. Kinds or Types of Price Discrimination 2. Effects of Price Discrimination 3. Evils of Price Discrimination.

Kinds or Types of Price Discrimination:

There are three kinds of price discrimination:

1. Personal Price Discrimination:

A monopolist may charge different prices from different individuals, rich may be made to pay more and poor a smaller amount for the same product.

Similarly, buyers who have a strong desire to buy a particular commodity may be forced to pay more. We find this practice among professionals like—doctors, advocates etc.

2. Local Discrimination:

The local price discrimination is that when the monopolist charges different prices from different localities, e.g., the Monopolist may charge one price in his home market and higher price in a foreign market.

3. Trade Discrimination:

A monopolist may charge different price from different trade and occupations.

For example:

The electric supply company charges higher prices from commercial establishment and lower prices for domestic light consumption. The monopolist mostly hides the facts of price discrimination so as not to make the buyers dis-please or angry. This can be done by various methods like changing the shape of the product or by slightly altering the colour or flavour of the products. He may also use different names for different varieties of the same products.

Effects of Price Discrimination:

As we have seen now that under price discrimination, there are two or more prices in the market instead of a single price for a commodity. A buyer will not be able to buy it at a price lower than the one fixed for him by the monopolist.

Some of the important effects of price discrimination are as follows:

(i) Price discrimination is followed to acquire stronger Monopoly power.

(ii) The price discrimination helps the monopolist to secure higher profits as compared to the profits secured by the simple Monopoly conditions.

(iii) The total output under price discrimination will be more than that of under the simple Monopoly.

Evils of Price Discrimination:

The evils of price discrimination are as follows:

1. Price discrimination leads to exploitation of consumers because the price charged here is based on the principle of “as the traffic will bear”. This means that every consumer is charged the maximum price he can pay.

2. All the evils or dis-advantages of the Monopoly are found in the price discrimination in an aggregate manner.

3. The consumer’s surplus is completely extracted or much reduced.

Discriminating Monopoly:

Discriminating Monopoly means an act of charging different prices by a monopolist for the same product to different buyers and in different markets. According to Prof. Stigler— “Discriminating Monopoly refers to the sale of technically similar product at prices which are not proportional to marginal cost.” It means discriminating Monopoly is applied to situations in which a monopolist charges different prices for the same product or service.