11: Price Discrimination

Price discrimination exists when a producer sells the exact same product to different customers at different prices.

1. The producer must have some price-setting ability, the market must be imperfect. Doesn't happen in PC. 2. The consumers must have different price elasticities of demand for the product. if they do not, then they would not be prepared to pay different prices. 3. There producer must be able to separate the consumers, so they are not able to buy the product and then sell it to another consumer.

Those which have an inelastic demand.

1. Time: consumers are often prepared to pay higher prices at certain times than at others. E.g. trains at morning. 2. Age: E.g. children. 3. Gender: E.g. football match 4. Income: E.g. Lawyers often charge higher to wealthy clients. 5. Geographical distance: Because of transport costs. 6. Types of consumers: different price to different users. E.g. Industrial and domestic users of electricity

1. Price discrimination enables the producer to gain a higher level of revenue from a given amounts of sales. 2. Might be able to produce more and gain from economies of scale. 3. May enable a firm to drive competitors out of the more elastic market. As they may use the profits made by selling to the inelastic market to lower price at elastic market.

Dumping takes place when firms sell their products in foreign markets at prices below the costs of production. It is illegal.

1. It may allow some users to buy a product they wouldn't be able otherwise. 2. Allows some people to purchase a product at a lower price than they would had to pay it for. 3. Usually increases total output in a market. 4. May lead to economies of scale, and thus lower all prices.

1. Consumer surplus lost. 2. Some consumers will pay more than the price that would have been charged in a single, non-discriminated market.

Takes place when each consumer pays exactly the price that he/she is prepared to pay. Takes place when bargaining. The MR = D = P. Eliminates consumer surplus and only earns the pale blue area.

Takes place when a firm charges different prices to consumers depending upon how much they purchase. They charge a high price for the first ones, and then a lower price for the rest.

Takes place when consumers are identified in different market segments, and a separate price is charged in each market segment that recognizes the different price elasticities in each segment.