What is price discrimination?

A special feature of a monopoly is Price Discrimination i.e.charging different prices from different customers for the same or substantially the same commodity at the same time. The monopolist may charge different prices from different groups of consumers if by this method he can increase his total profit.

Monopoly can be justified ( including price discrimination ) if it is not run for profit but to increase economic welfare of the community e.g.. Indian Railways charge different price from students on academic tour and normal rate from general public. Similarly, electricity boards (i.e.. state ) charge higher tariff from industry and lower tariff from fairness. Price discriminator means selling the same product to different sections of customers at different prices.

Customers are discriminated on the basis of their income or purchasing power geographical location, age, sex, color, marital status, quality purchased,time of purchase etc. When customer are discriminated of the basis of these factors in regard to price charged from them , it is called Price Discrimination.

There is another kind of Price discrimination. The same price is charged from the consumers of different areas while cost of production in two different plants located differently is not the same. Some common examples of price discrimination :-

  1. Different rates in domestic and foreign markets
  2. Lower rates for the first few telephone calls, lower rates for the evening and night trunk calls;
  3. higher electricity rates for commercial use and lower for domestic consumption etc.