price discrimination

(noun)

The practice of selling identical goods or services at different prices from the same provider.

Related Terms

Examples of price discrimination in the following topics:

  • Analysis of Price Discrimination

    • In commerce there are three types of price discrimination that exist.
    • Price discrimination is a driving force in commerce.
    • By using price discrimination, the seller makes more revenue, even off of the price sensitive consumers.
    • Premium pricing: uses price discrimination to price products higher than the marginal cost of production.
    • Gender based prices: uses price discrimination based on gender.

  • Examples of Price Discrimination

    • Price discrimination occurs when identical goods or services are sold at different prices from the same provider.
    • There are three types of price discrimination:
    • Methods of price discrimination include:
    • For example, a Ladies Night at a bar is a form of price discrimination.
    • These graphs show multiple market price discrimination.

  • Elasticity Conditions for Price Discrimination

    • In pure price discrimination, the seller will charge the buyer the absolute maximum price that he is willing to pay.
    • An example of price discrimination would be the cost of movie tickets.
    • Industries use price discrimination as a way to increase revenue.
    • The pharmaceutical industry experiences international price discrimination.
    • Academic textbooks are another industry known for price discrimination.

  • Average and Marginal Cost

    • Economic factors that impact the marginal cost include information asymmetries, positive and negative externalities, transaction costs, and price discrimination.
    • The curves show how each cost changes with an increase in product price and quantity produced.

  • Defining Monopoly

    • Price maker: the monopoly decides the price of the good or product being sold.
    • The price is set by determining the quantity in order to demand the price desired by the firm (maximizes revenue).
    • Price discrimination: in a monopoly the firm can change the price and quantity of the good or service.
    • If the price is high, the firm will sell a reduced quantity in an elastic market.
    • The graph shows a monopoly and the price (P) and change in price (P reg) as well as the output (Q) and output change (Q reg).

  • The Demand for Inputs

    • The demand for an input can be derived by using the production function (the MP for an input) and the price of the good.
    • The constant price at all levels of output (PX = $11 at all output levels) is the result of the firm being in a purely competitive market; the demand faced by the firm is perfectly elastic.
    • Wage/price discrimination is technically illegal, all workers are paid $22.
    • Note that the only difference in Table IX.1 and IX.2 is that he price of the output must be decreased if more units are to be sold.

  • Federal Efforts to Control Monopoly

    • Consolidation of smaller companies into bigger ones enabled some very large corporations to escape market discipline by "fixing" prices or undercutting competitors.
    • Reformers argued that these practices ultimately saddled consumers with higher prices or restricted choices.
    • The act outlawed price discrimination that gave certain buyers an advantage over others; forbade agreements in which manufacturers sell only to dealers who agree not to sell a rival manufacturer's products; and prohibited some types of mergers and other acts that could decrease competition.
    • In 1961, a number of companies in the electrical equipment industry were found guilty of fixing prices in restraint of competition.
    • Gas prices were low, and other, powerful oil companies seemed strong enough to ensure competition.

  • Social Impacts of Monopoly

    • A monopoly can diminish consumer choice, reduce incentives to innovate, and control supply to enforce inequitable prices in a society.
    • This allows for revenues, costs, price, and quantity to achieve a balance where the consumer is provided with the optimal amount of a good at the most equitable price.
    • Picture a supply and demand chart, where supply and demand intersect to generate a fair price point and overall quantity provided.
    • Now assume one company has the entire supply under it's control, and can discriminate prices along the demand curve to capture higher prices than the available supply should allow.
    • This allows monopolies to charge customers with a higher willingness to pay a higher price, while still charging consumers with a lower willingness to pay the standard prices.

  • Glossary

    • Bull market: A market in which there is a continuous rise in stock prices.
    • Consumer price index: A measure of the U.S. cost of living as tabulated by the U.S.
    • Dow Jones Industrial Average: A stock price index, based on 30 prominent stocks, that is a commonly used indicator of general trends in the prices of stocks and bonds in the United States.
    • (This should not be confused with increases in the prices of specific goods relative to the prices of other goods. )
    • Price fixing: Actions, generally by a several large corporations that dominate in a single market, to escape market discipline by setting prices for goods or services at an agreed-on level.

  • Price Ceilings

    • A price ceiling is a price control that limits how high a price can be charged for a good or service.
    • A price ceiling is a price control that limits the maximum price that can be charged for a product or service.
    • An example of a price ceiling is rent control.
    • By setting a maximum price, any market in which the equilibrium price is above the price ceiling is inefficient.
    • For a price ceiling to be effective, it must be less than the free-market equilibrium price.