Introduction:

Generally speaking the monopolist will not change uniform price for all the customers in the market. He will follow different Degrees of Price discrimination under different circumstances. The policy of price discrimination refers to the practice of a seller to change different prices for different customers for the same commodity produced under a single control without corresponding differences in cost.

Monopolistic competition is a market structure that combines elements of both monopoly and perfect competition. In a monopolistic competition market, there are many sellers (similar to perfect competition) offering differentiated products. Each firm has some control over the price it charges, as its product is somewhat unique or differentiated from others. This product differentiation can be achieved through branding, design, marketing, or other factors. Monopolistic competition represents a balance between competition and monopoly, and it is a common market structure in the real world, especially in industries like retail, restaurants, and clothing.

Price Discrimination:

Price discrimination refers to the practice of charging different prices for the same or similar goods or services in different markets or to different customers. The key conditions for price discrimination are:

1. Market Power: The firm must have some degree of market power, allowing it to set prices.
2. Identifiable Market Segments: The firm can identify different market segments with different elasticities of demand.
3. Prevent Arbitrage: The firm must be able to prevent the resale of the product from one market to another.

Degrees of price discrimination:

• Discrimination of the first degree: Under price discrimination of the first degree the producer exploits the consumer to the maximum possible extent by asking him to pay the maximum. He is prepared to pay instead of going without the commodity. In this case the monopolist will not allow any consumer surplus to the consumers. This type of price discrimination is called first degree of discrimination. The firm charges each consumer the maximum price they are willing to pay. This is theoretically the most efficient form of price discrimination but is rarely achievable in practice.
• Discrimination of the second degree: In case of discrimination of the second degree, the monopolist changes different prices for different units of the same commodity but not at a maximum possible rate but at a lower rate. The monopolist will leave a certain amount of consumer surplus with the consumers. This is the policy to keep the consumers satisfied and stoppage in the entry of potential rivals. The firm charges different prices based on the quantity consumed or the characteristics of the product. For example, bulk discounts or tiered pricing.
• Discrimination of the third degree: In case of third degree of discrimination, the markets are divided into many sub markets. The price charged in each case roughly depends on the ability to pay of different sub groups in the market. This is the most common type of discrimination followed by a monopolist. The firm charges different prices to different consumer groups based on their characteristics, such as age, location, or income. This is the most common form of price discrimination.

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