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Introduction
Price discrimination denotes the process of charging unlike prices for a comparable item to different customers, which is not because of variations in the cost of supply. It occurs in three different forms, which include the first, second, or third degree.
Main body
Price discrimination is undertaken mainly to boost the revenue of the discriminating companies (Mahoney & Weyl, 2017). It happens when different customers are willing to buy an item at the set price irrespective of there being a comparable but cheaper one. Additionally, firms may decide to offer the same item or service at varying prices in different markets. A good example of third-degree price discrimination is a situation where airlines set different airfares for the same journey reliant on seasons, day, or time of the flight. During weekdays and peak holiday seasons, airfares are high due to the increased demand that is more inelastic.
Price discrimination may occur in any market be it offline or online, and amid companies that do not have market dominance. It typically reveals the competitive approach that competition strategy endeavors to endorse (whether through incentivizing companies to serve a high number of customers or boosting the motivation to compete) (Kutlu, 2017). Nonetheless, price discrimination may at times be a cause for concern, for instance, when it results in manipulative, straining, or exclusionary impact (Chen, 2017). For effective price discrimination, some consumers have to be unable to buy goods or services at a high price as others prefer costly items.
Conclusion
The regulation of price discrimination seeks to prevent a case where one firm drives others out of business through underselling in a marketplace where there are competitors and selling at high prices in markets that it enjoys a monopoly.
References
Chen, C. S. (2017). Price discrimination in input markets and quality differentiation. Review of Industrial Organization, 50(3), 367-388.
Kutlu, L. (2017). A conduct parameter model of price discrimination. Scottish Journal of Political Economy, 64(5), 530-536.
Mahoney, N., & Weyl, E. G. (2017). Imperfect competition in select markets. Review of Economics and Statistics, 99(4), 637-651.
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