Price Discrimination

Price discrimination is defined by the textbook as "the practice of employing price differentials that tend to injure competition by giving one or more buyers a competitive advantage over other buyers".  This often happens in monopolistic or oligopolistic markets because it is easier to do when one has huge market power.  They do it to gain higher profits and squeeze every last dollar out of the consumer and the consumers are charged the maximum price they are willing to pay for the product.  This makes it so the producer captures all consumer surplus in the market.  This is difficult to do because the producer has to have a very good idea of the demand of the consumers.

While this is illegal, there is a form that is legal called imperfect price discrimination.  There can be different prices for different target markets.  For example, at the movie theaters, amusement parks, and museums there are different prices for adults, seniors, students and children.  It is based on the price elasticity of each group, with those who want to spend the least amount money and be the most affected by high prices are charged the lowest prices.  Another example is ladies night in a bar, where the women don't have to pay the cover charge and/or get discounted drinks.

There also other types of price discrimination; in most cases consumer surplus is reduced.  However, it could also be argued in cases that it is positive because there is less dead weight loss in society.


http://www.revisionguru.co.uk/economics/pricedis.htm

http://tutor2u.net/economics/revision-notes/a2-micro-price-discrimination.html