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SESSION 24RA (DEEPTI AHUJA)
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WHAT IS PRICE DISCRIMINATION ? EQUILIBRIUM OF A DISCRIMINATING
MONOPOLIST
TYPES OF DISCRIMINATION PRICE DISCRIMINATION AND THE EXISTENCE
OF THE INDUSTRY
MONOPSONY
BILATERAL MONOPOLY
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Price discrimination exists when the sameproduct is sold at different prices to differentbuyers . The product is basically the same ,produced at the same cost , which is sold at
different prices depending on the preferenceof the buyers , their income , their location.
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The market must be divided into sub marketswith different price elasticities
There must be effective separation of the submarkets so that no reselling can take placefrom a low price market to a high pricemarket
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DISCRIMINATION OWING TO CONSUMERS
PECULARITIES
DISCRIMINATION OWING TO NAYURE OF THE
PRODUCTDISCRIMINATION OWING TO THE DISTANCE
AND FRONTIER BARRIERS
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Condition of profitable price discrimination isMR1 = MR2=MC
The total cost function of monopolist is same
MC Price discrimination can be carried on
profitably only if elasticities are different intwo markets
MR in each market must be changing lessrapidly than MC for a output as a whole
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P
Q1
P1
0 AR1MR1qi
AR MR
q2
p2
AR2
MR2Q2
AR
MR MCMR
E
MC
P*
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PARMR
0
p2
AR1MR1
MC
AR2=MR2
p1
E
E1
q1 q2 Q
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FIRST DEGREE DISCRIMINATION extreme form ofdiscrimination and is known as perfect
discrimination.
HERE MC IS ASSUMED TO BE CONSTANTP
Q
DD
MC =AC
0
p
p3
p2
p1
q1q2 q3
e
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Imperfect form of discrimination
Instead of setting different prices it involvespricing based on the quantities of output
purchased by individual consumersp
q
p1
p2
p3
q1 q20
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Most common form of price discrimination Involves separating consumers or markets in
terms of their price elasticity of demand
Discrimination can be based on the nature ofuse
Market can be segmented based on personalcharacteristics of consumers
Often occurs in the markets that aregeographically separated
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pp p
q q q
p1
p2
MR1
D1
q10
q2
MR2D2 D
MR
Q
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Doctors often charge rich patients more than poorpatients They may have one price for those with insurance and
another price for those without insurance
Movies in the evening cost more than those in the
early afternoon Senior citizen, youth, and student discounts New and used cars Youth fairs on airlines Evening meals in restaurants often cost more than
the same meal at lunch
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P
C
Q0 q1 q2 Q
p1
p2
D1
D2
D LAC
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Consist of a single seller and single buyer Equilibrium will not be determined by
traditional tools of demand and supply
Economic analysis can only define the range
within which price will eventually be settled Precise level of price and quantity will be
defined by non economic factors likebargaining power , skill and other strategies
of firm Under such conditions analysis lead to
indeterminacy
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p
c
q
ME
MC
DD
e1
e2
a
b
MR
q1q2
p1
p2
P
Q
PRICE WILL BE SET WITHINTHE RANGE FROM p1-p2
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