PRICE DISCRIMINATION

BY VIDHYA.K

MEANING• Price discrimination means the practice of selling

the same commodity to different buyers. If the monopolist charges different prices from different consumers for the same commodity ,it is called price discrimination. (OR)

• Price discrimination means selling the same product at different prices to different buyers or to the same buyer.

FOR EXAMPLE: AIR TICKETS. BOOKING THE AIR TICKETS BEFORE THE TRAVELLING PERIOD SAY 3 MONTHS WILL COSTS LESS WHEN COMPARE TO THE BOOKING BEFORE A DAY FOR THE TRAVEL TO THE SAME DESTINATION FROM SAME PLACE WITH HIGH COST.

DEFINITION

Price discrimination may be defined as “the sale of technically similar products at prices which are not proportional to marginal cost”.

Price discrimination is also known as “DIFFERENTIAL PRICING”.

• EXAMPLE: All cinema theatres charge different prices

for different classes of people.

TYPES OF PRICE DISCRIMINATION

• Income of the customer• Nature of the product• Age and Status of the customers• Time of service• Geographical discrimination• Use of the product

INCOME OF THE CUSTOMER:

Price discrimination is based on income of aindividual customer.

FOR EXAMPLE: doctors charge different fees from different customers. Higher fees are

charged to rich persons and lower to the poor.

NATURE OF THE PRODUCT:Price discrimination is based on the nature of the product. It may be of size, branded or unbranded.

AGE AND STATUS OF THE CUSTOMERS:1) AGE OF THE CUSTOMER:Different prices are charged from differentcustomers for same activity done.

2) STATUS OF THE CUSTOMERS:Price discrimination is based on the status of thecustomer.

TIME OF SERVICE:Price discrimination may be based on time of the service provided.

GEOGRAPHICAL OR LOCAL DISCRIMINATION:price discrimination is based on geographical locations where the prices may vary accordingly.

USE OF THE PRODUCT:Price discrimination may be based on the usage of the product. EXAMPLE: usage of electricity for industrial use and for domestic use.

CONDITIONS FOR PRICE DISCRIMINATION

• Multiple demand elasticities• Market segmentation• Market sealing

MULTIPLE DEMAND ELASTICITIES:There must be difference in demand elasticities among the buyers due to differences in income, location, available alternatives, tastes, etc.

MARKET SGMENTATION:The seller must be able to segment the total market by segregating the buyers into groups.

CRITERIA FOR MARKET SEGMENTATION

Haynes, Mote, and Paul have identified somecriteria according to which the marketsegmentation is practised. The segmentation by:1. Income and wealth2. Quantity of purchase3. Social or professional status of the customer4. Geography5. Time of purchase6. Preferences for brand names and other sales promotion7. Age of the customer

Market segmentation not only gives the manufacturers a degree of flexibility in pricing but also ensures that they have a presence in every slot of the market. EXAMPLE:HINDUSTAN UNILEVER

MARKET SEALING

The seller must able to prevent, or naturalcircumstances must exist which will prevent anyresale of goods from lower to the higher price. IfThere is any leakage in the form of resale ,willlead to the narrow price structure where itapproaches to single price to all buyers.

When is price discrimination is profitable?

Price discrimination is profitable only when thePercentage change in surplus associated with aproduct upgrade is increasing the consumer willingness to pay, i.e. total consumer’sWillingness to pay less the firms costs .

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