Price discrimination as a pricing practice is resorted to by a monopolist .A monopolist being a single producer and seller is a price maker and not a price taker like a firm in perfect competition .The powers enjoyed by a monopolist or a single seller and price maker enable him to practice the method of price discrimination. The act of selling the same article, produced under single control at different prices to different buyers is called Price Discrimination. It is significant to note that price discrimination allows sellers to have some of the consumer’s surplus that would otherwise have gone to buyers.
CONDITIONS FOR DISCRIMINATION
Price discrimination is possible under certain conditions they are:
1.Non-Transferability of Goods:A monopolist can charge different prices for the same good, provided the consumers are not in a position to transfer the goods from one to the other. This could happen only if the consumers either do not meet each other or in case they do meet, will not be able to exchange the goods.
2.Geographical Distance:If the markets are situated at sufficiently long distances then the transfer of goods may not be economical .For example, if discrimination is resorted to in Mumbai and Pune markets and the difference is Rs.5/- per unit, then the transfer of goods from one buyer to other between the two markets is not at all economical.
Political boundaries prevent the movement of people from one market to the other. For example Calcutta and Dakha. Since trade is allowed between the countries, a monopolist who operates in both the markets can charge different prices for the same commodities.
4.Tariff Barriers:If the home market is protected through tariffs, a monopolist may charge a higher price in the protected home market and a lower one in the competitive foreign market.
When the consumers are ignorant of the price difference they will not mind paying a higher price than what the others pay.
6.Negligible Price Difference:
Even when price discrimination is resorted to, but the difference in price is too small, the consumers would not bother about the negligible difference. Attitude of indifference on the part of consumers enables the monopolist to resort to price discrimination.
When consumers, due to irrationality or for any other reason consider higher price as an indicator of better quality, then it is possible for a monopolist to charge a higher price to some consumers.
Goods sold in sophisticated or rich localities or sold in departmental stores may be charged at a higher price than the same goods sold in poor localities. Snobbish consumers are willing to pay higher prices by purchasing goods from posh localities or stores.
9.Government‘s Sanction:The Government due to welfare, social or political reasons may charge different prices for the same goods and services. Electricity for domestic use may be charged at a lower rate as compared to electricity for commercial use; girls are exempted from fees or charged low fees in schools.
The conditions stated above are necessary to practice price discrimination.