Question

1. Is price discrimination, or also called price differentiation, a special pricing practice that only Monopolies apply?
2. Offer an example of first-degree price discrimination on a flight airline.
3. Offer an example of third degree price discrimination. And because he is considered third grade.

Answer 1

(Question 1)

Any firm which has considerable market power, including a monopoly or oligopoly, can exercise price discrimination. It is the practice of charging different price for the same good, from different consumers (or different consumer segments). The essential conditions of effective price discrimination is:

(I) Seller must be able to categorize and identify different consumers (segments), on basis of their elasticity of demand, and

(II) Resale from lower-priced segment to higher- priced segment is not possible.

Price discrimination increases revenue and cost if the seller (monopolist or oligopolist) charges a higher price in the segment will more inelastic (less elastic) demad, and lower price in the segment with more elastic (less inelastic) demand.

NOTE: As HOMEWORKLIB Answering Policy, only 1st question has been answered.