Reviewed by Jan 29, 2021| Updated on
Price discrimination is a microeconomic pricing technique, in which the same supplier transacts equivalent or substantially equivalent goods or services in separate countries at varying prices.
Price discrimination is differentiated from value distinction by the enormous gap in the cost of manufacturing between the individually priced goods involved in the above strategy.
Price differentiation essentially relies on: - The variance in the ability of consumers to pay - The elasticity of their demands
Price discrimination is exercised on the grounds of the seller's assumption that consumers should be forced to pay more or less on the grounds of other factors or whether they perceive the good or service involved.
Price discrimination is most important because the profit gained by splitting the markets is higher than the benefit received by holding the markets together. How the price discrimination exists and how long the different classes continue to pay different prices for the same good depends on the relative elasticity of the sub-market competition.
Conditions for price discrimination: - Difference in Elasticity of Demand - Market Imperfections - Differentiated Product - Legal Sanction - Monopoly Existence
Price discrimination can be categorised into the following three types:
Personal Price Discrimination: Specific pricing discrimination refers to paying varying prices for the same good from different consumers. A physician, for example, charges separate payments from rich and poor people for the same treatment.
Geographical Price Discrimination: The monopolist pays varying prices for the same goods in different countries, under territorial price segregation. This also involves manipulation where a manufacturer will sell the same product at one price at home country and the other price abroad.
Price Discrimination According to Use: The monopolist pays various premiums according to the need for different applications of the same product.