PRICE DISCRIMATION

Meaning -It implies te act of selling the output of the

same product at different prices in different market or
different buyers
PD OCCURS IN TWO WAYS
1. By charging different prices for the same product
2. By not setting prices of different varieties of
products or different products in relation to their
cost differences
FORMS OF PD
1. personal discrimation – Income effect to lawyers
& doctors fee
2. Age discrimination - barbers rates for children are
less as compared to adults
3.sex discrimination- male females extra facilities
some fare tickets rates
4.locational or territorial discrimination – different
rates in import exports & material where they
belong
5 size discrimination- pouches sache or tubes of
toothpaste differ in size
6. quality variation discrimination – ex publishers
may sell deluxe edition at higher price than papaer
back edition of the same book
7.special services or comforts – ex railways may
charges different fares for 1st n 2nd class travel
restaurants charges different rates for additional
facilities
8.use discrimination – example mpeb charges high
rate of electricity for domestic use n low for
industrial use
9.time discrimination – movie rate are low in
morning as compared to day n night
10.nature of commodity –freight charges by the
railways are different for coal niron for the same
distances
DEGREES OF PD
1ST DEGREE –Under this the monopolists charges
different rates to different buyers for each different
unit of the same product
The price set for each unit are set according to the
marginal utility of the buyer & at what maximum
price he is willing to pay
Under this degree the entire consumer surplus of the
buyer is converted into monopolists revenue & profit
CS = CONSUMER WILLING TO PAY – ACTUALLY PAY
In this extra payment rather than going without the
product
Diagram in board
Absence of PD – OM is the output
---OP is the price
Total amount opbm
Presence of PD – Total revenue = ABMO
_ Surplus area = APB
 2ND DEGREE PD
1. In this the monopolist sells block of output at
different prices maximum is charged for some
minimum block of output & then additional blocks
are sold at successively lower prices
2. In this degree monopolists monopolists captures a
part of consumer surplus n not the whole of it
3. This is possible when the market is very large with
different taste, income & groups
4. DIAGRAM IN BLACKBOARD
1. DD is the market demand curve for electricity
ina region
In absence of pd
2. Output = oq3 at op3 price & total revenue
would be op3gq3

Now if the PD is adopted market may be divided under

three groups
3. 1st group op1 at oq1
 4. 2nd group q1q2 at op2
5. 3rd group q2q3 at op3
6. Total revenue become the sum of three
rectangles op1aq1+q1ebq2+q2fcq3
7. Area op1aebfcq3 which is greater than
op3gq3

3RD DEGREE PD
In this the firm divides the total output into many
submarkets & sets the different prices for its product in
each market in relation to the demand elasticities
In this the monopolists would follow the principle of
equi marginal revenue ie the total output ineach
market will be distributed in such a way that the MR
will be equal
DIAGRAM EXPLANATION
1.two markets
2. demand curve for market 1 & market 2 are D1 & D2
3. D1 Is less elastic n D2 is more elastic
4.when firm produces q1 & q2 with op1 & op2 prices
5.op1 prices charged in market 1 with less elastic
demand & op2 price charged in market 2 for more
elastic demand
6 .but MR from both market are equal
CONDITION ESSENTIAL FOR PD
1. Imperfect competition in the market
2. Market should be divisible into submarkets among
which the product cannot be exchanged
3. Eod must be different in different market high p in
least elastic market
4. Price discrimination through product
differentiation

WHEN PD IS PROFITABLE