Price Discrimination

Price discrimination is usually found in a market which is not perfectly competitive. Price

discrimination can be observed at many places such as movie tickets, hotel tariffs, flight tickets,

visa fees etc. This can be defined as charging different prices from different class of customers.

Price discrimination requires the ability with the producer or seller to separate customers

according to their willingness to pay (Taylor & Mankiw 309).The economic reason of existence

of an entity is to earn more money and this can be achieved in a monopoly or monopolistic

market using price discrimination.

In an imperfect market condition, the demand of a product varies as the price changes.

Lowering the price brings more customers, however increased revenue does not result in higher

profit. This can be best achieved applying the graph where the marginal cost cuts the marginal

revenue curve from below. This economic condition is applicable only in cases where the same

price can be charged from all the customers such as in case of sell of sports drink however where

the entities find that they can charge different prices from different people for the same service,

they try to discriminate their price in such a way so that it may yield the maximum benefit to

them. So, price discrimination is a rational strategy for a profit-maximizing monopolist (Mankiw

315)

Price discrimination is very common (Ferrel & Hartline 255) and it results in economic

situations of customer surplus or supplier surplus or both together in few cases. Considering the

last example, we find it many times that the travelers are ready to pay higher amount but they

could get a ticket for a low price. Similar situation also holds well in few situations for suppliers

and sometime both of them are happy.

 Let us take an example in US, where the people book their flight tickets on different

moments, they find different prices. It is also very common that you may find people paid

different prices travelling in the same flight. It is quite simple to understand that the cost of the

flight operation is fixed however they are charging different prices depending upon their booking

position on different days.

Let us analyze this case from a customer point of view. Usually it is not good as the

customer is not equally treated by the seller. In few cases, it is very good for the customer, as he

needs to pay a very small sum of money compared with the usual price. From the economic point

of view, it is very good for the entity as they are in a position to maximize their potential to have

better bottom line.

 References

Taylor M P & Mankiw N G, Microeconomics, Monopoly, UK, Thomson, 2006, Print

Mankiw N G, Principles of microeconomics, OH USA, South-western cengage learning, 2008,

Print

Ferrel O C & Hartline M D, Marketing strategy, OH USA, South-western cengage learning,

2011, Print