The concept describes the basics of price discrimination and the conditions required for discrimination to occur. It offers examples across sectors and elaborates on its benefits and drawbacks.
Price Discrimination Definition
Price discrimination occurs when the same commodity is sold at different prices to different consumers (Phlips, 1983). This is possible when market characteristics differ from those of perfect competition. In fact, as Mankiw (2009) notes, the main example of price discrimination is based on the rational behaviour of the monopolist who charges different prices to each customer to increase profits, extracting the maximum price everyone is willing to pay. However, other situations may allow it, such as market failures and/or imperfect information.
Price Discrimination Description *
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Price Discrimination References (4 of up to 20) *
- Arnold, R.A. (2008) Microeconomics. Cengage Learning.
- Barrows, D. and Smithin, J. (2008) Fundamentals of Economics for Business. World Scientific.
- BBC News (1998) Foreigner Wins Case Against Price Discrimination in Russia. 20 April. Available at: news.bbc.co.uk/2/hi/world/monitoring/80605.stm [Accessed on 14 October 2011].
- Bester, H. and Petrakis, E. (1994) Coupons and Oligopolistic Price Discrimination. International Journal of Industrial Organization, Vol. 14(2), pp. 227-242.
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