Price discrimination
Involves charging different prices for the same good or service which have the same costs of production
To do this a firm must:
keep market separate
have control over price
Prevent individuals in one market buying at the lower price in the market
keep the price elasticity of demand for the product different
Methods:
Time - different rates at different times of the day
Geography - different rates by different regions
Branding - sell product under own brand name and then also under a supermarket's brand name at a lower price
Status - members of a club may be charged different prices then non-members
Age - senior citizens may be changed less than people under retirement age
Advantages
Effect on consumers
loss of welfare as consumer surplus complete disappears
Increased revenue as consumers who would have purchased the product at the higher price now do
Profitable and will provide a higher level of total revenue to the firm than the best seller
Output will be larger than under single price monopoly (economies of scale)
Increased producer surplus
Inequitable - some customers have to pay more than others
If profits are reinvested, consumers might derive long-run benefits in terms of increased efficiency and lower costs and prices
Lower price might mean poorer consumers may be able to afford the product