Q.What is meant by price discrimination? Explain the various methods of price discrimination.

Price discrimination is the act of a monopolist selling the same product at different prices to different buyers. Its forms include personal, use/trade, place (geographical) and time discrimination, and Pigou classified it into first-, second- and third-degree price discrimination.

Meaning

Price discrimination occurs when a seller charges different prices for the same commodity from different buyers, or in different markets, where the price difference is not justified by any difference in cost of production. It is practised mainly by a monopolist, because he controls the supply.

Conditions necessary for price discrimination

• The seller must have some control over supply (monopoly power).
• The markets must be separable and buyers must not be able to resell the product from the cheaper to the dearer market.
• The elasticity of demand must be different in the different markets.

Methods / Forms of Price Discrimination

1. Personal discrimination — different prices are charged from different persons according to their ability to pay. For example, a doctor charges rich patients more and poor patients less for the same service.
2. Discrimination according to use or trade — different prices are charged for different uses of the same product. For example, electricity is charged at one rate for domestic use and another for industrial or agricultural use.
3. Place or geographical (local) discrimination — different prices are charged in different markets or places. Selling a product cheaper in a foreign market than in the home market is called dumping.
4. Discrimination by time or age — different prices are charged at different times, or from different age groups. For example, lower fares or tickets for children and students, and off-season concessions. …