Question

a) Discuss how monopoly markets discriminate prices by using the concept of market segmentation

Answer 1

There is a single vendor of a product called a monopolist in monopoly. The monopolist is in control of pricing, demand, and supply decisions, thus setting prices in a way that makes it possible to earn maximum profit. The monopolist frequently charges different prices for the same product from different consumers. This practice of charging different identical product prices is referred to as price discrimination. Price discrimination is a common pricing strategy used by the discretionary pricing power of a monopolist. The monopolist practices this strategy to gain market advantage or capture the position of the market.

Personal- Refers to market discrimination if different individual prices are paid. The different prices are charged based on the level of consumer income and willingness to buy a product. A doctor pays different fees to poor and affluent clients, for example.

On the basis of use- This occurs if different prices are paid depending on a product's use. A power supply board, for instance, pays lower rates for domestic electricity consumption and higher rates for industrial use.

Geographical- Refers to price discrimination when different prices for the same product are charged by the monopolist at different locations. Also called dumping is this type of discrimination.

Across almost every industry, price discrimination has become common. Price discrimination is also referred to as monopoly price discrimination or yield control across economic jargon. In various markets, the degree of price discrimination varies.

i. First-degree Price Discrimination:- Refers to a price discrimination where a monopolist charges the maximum price to be paid by each buyer. This is also referred to as perfect price discrimination because it involves maximum consumer exploitation. Consumers are not enjoying any consumer surplus in this. Lawyers and doctors practice first grade.

ii. Second-degree Price Discrimination-Refers to a price discrimination where buyers are divided into different groups and these groups charge different prices depending on what they are willing to pay. Railways and airlines are discriminating against this type of price.

iii. Third-degree Price Discrimination:

Refers to a price discrimination in which the monopolist splits the whole market into submarkets and in each submarket different prices are paid. Third-degree price discrimination is therefore also called market segmentation.

The monopolist is forced to segment the market in such a way in this form of price discrimination, so that products sold in one market can not be resold in another market. In addition, he / she should identify the demand price elasticity of the various submarkets. The groups are divided by age, sex, and location.