Introduction:

Generally speaking the monopolist will not change uniform price for all the customers in the market he will follow different methods and the different circumstances. The price discrimination policy refers to the a seller charge different prices for different customer for the same commodity produced under a single control without any differences in cost. When the Monopoly firm adopts this policy it will become a discriminatory monopoly.

A monopolist engages in price discrimination to maximize profits by charging different prices for the same product or service to different customers or groups of customers. This practice is possible when the monopolist has market power, the ability to segment the market, and the capacity to prevent resale between segments. Below is an overview of the types, conditions, and implications of price discrimination:

According to professors, monopolist may be able however to divide his sales among the number of different markets and to change a different price in each market.

Kinds of price discrimination:

Professor AC Pigou speaks of three kinds 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 price. he is prepared to pay rather than go without the commodity in this case the monopolist will not allow any consumer surplus to the consumer this type of price discrimination is called perfect discrimination. Examples: Auctions or personalized pricing in online platforms.
• Discrimination of the second degree: In case of discrimination of the second degree the monopolist charges different prices for different units of the same commodity but not as maximum possible rate but at a lower rate. The monopolies will leave a certain amount of consumer surplus with the consumer this is done to keep the consumers happy and prevent entry of potential rivals. railway companies adopt this method. Examples: Bulk discounts, tiered pricing for software, or product versions with varying features.
• Discrimination of the third degree: In case of discrimination of the third degree the markets are divided into many submarkets or subgroups the price charge in each case roughly depends on the ability to pay of different sub group in the market this is the most common type of discrimination followed by monopolist. Examples: Student discounts, senior citizen discounts, or peak vs. off-peak pricing in transportation.

also read: explain the price and output determination under the perfect competition.