Question

3. What market type is usually regarded as responsible for price discrimination? What conditions are necessary for price discrimination to be effective? Who benefits from price discrimination and why?

Answer 1

MONOPOLY is responsible for price discrimination.

CONDITIONS :

The firm must have market power. The firm must be monopoly. it should be a single seller with no competition. the good must have a population to be bought. the firm must be the sole seller

The firm must be able to recognize differences in demand. it should be able to segregate its customers. price discrimination can only be done if consumers can be classified and then charged differently.

The firm must have the ability to prevent arbitration, or resale of the product. one must not be able to buy in market A and sell in market B. this way price discrimination will fail and lead to arbitrage.

BENEFITS

Price Discrimination involves charging a different price to different groups of consumers for the same good. people who can pay more are charged more and those who can pay less are charged less. thus the monopolist can increase his profits and not lose its market.  Price discrimination can provide benefits to consumers, such as potentially lower prices. thus it is win win for all.