Price discrimination is a technique employed by the monopolist to make the consumers pay according to their ability. The unique position and control which the monopolist exercises over his supply or his price makes it possible for him to treat the various customers or different markets in a different manner. The act of selling the same article, produced under single control at different prices to different buyers is known as price discrimination. One may speak of price discrimination if a seller offers the same goods to different buyers or a group of buyers at different prices.
Under perfect competition, price discrimination is not possible. This is because there is a very large number of a firm producing the same produce. The moment a firm charges a differential price, it would set forces into operation which will restore the same price. In fact under competitive conditions the price is determined by the forces of accept the price as given and adjust their output accordingly. Therefore, there is no scope for price discrimination under perfect competition. It is only under the monopoly, that being in complete control of production the monopolist is in a position to discriminate among buyers.
Price discrimination occurs when a seller charges different prices for different units of the same product for reasons not associated with differences in costs. Not all price differences represent price discrimination. Quantity discounts, differences between wholesale and retail prices and prices that vary with the time of day or the season of the year may not represent price discrimination because the same product is sold at a different time, in a different place or in different quantities may have different costs. If price differences reflect cost differences, they are not discriminiating. In contrast when a price difference is based on different buyers’ valuation of the same product, price discrimination does occur.
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