What are the conditions under which price discrimination is possible?

What are the conditions under which price discrimination is possible?

Price discrimination is possible under the following conditions: The seller must have some control over the supply of his product. Such monopoly power is necessary to discriminate the price. The seller should be able to divide the market into at least two sub-markets (or more).

Is third degree price discrimination legal?

Third degree Charging different prices to different customers is legal (save for race-based and other sensitive cases), but if determined to have anticompetitive implications, it can be deemed illegal under the Sherman Antitrust Act and subsequent legislation (such as the Robinson-Patman Act of 1936).

How do you calculate profit in first degree price discrimination?

Each unit of output has a unique price, so Plast is the price only for the last unit sold. Every other unit has a higher price. The resulting profit for the firm equals the revenue it receives for each unit minus the average total cost per unit, ATC0.

What is profit in perfect price discrimination?

Under perfect price discrimination, the marginal revenue curve coincides with the market demand curve, so the monopolist will also produce until marginal cost equals the price of the product. Graph #1 shows the profit of a monopoly selling its product at only a single price.

What are the three degrees of price discrimination?

First-degree price discrimination involves selling a product at the exact price each customer is willing to pay. Second-degree price discrimination targets groups of consumers with lower prices made possible through bulk buying. Third-degree price discrimination sets different prices based on the demographics of subsets of a client base.

What is the difference between first and second degree discrimination?

With first-degree discrimination, the company charges the maximum possible price for each unit consumed. Second-degree discrimination involves discounts for products or services bought in bulk, while third-degree discrimination reflects different prices for different consumer groups.

What are the benefits of second degree price discrimination?

Second-degree price discrimination does not altogether eliminate consumer surplus, but it does allow a company to increase its profit margin on a subset of its consumer base.

Why do firms need to be able to price discrimination?

Firms must be able to control supply. Firms must prevent the resale of products from one buyer to another. There must be a difference in price elasticities in the different markets for the product. 1. Perfect Price Discrimination