Question

What conditions are necessary for price discrimination to take place

Answer 1

important conditions for price discrimination to take place:

1. A seller must possess monopoly power if it is to practice price discrimination. If the monopoly power is absent, a seller is not able to charge some customers a higher price than the others. In the case of perfectly competitive markets, price discrimination is ruled out because uniform price must prevail in the market in which homogenous product is sold and producers have no control over the market price.
2. The concept of price discrimination can be successfully pursued when it is possible to divide the monopoly market into separate submarkets (by branding it may be possible).
3. Price discrimination is possible only when the elasticity of demand is different in different markets. When demand is inelastic, a monopolist will fix a higher price in the market and lower prices in the case when demand is elastic. However, price discrimination is ruled out in case the elasticity of demand is the same across different markets.
4. Price discrimination is possible when a unit of the commodity cannot be transferred from a cheaper market to an expensive one and when price elasticity of demand is different in different markets.