Question

Does market structure influence the capacity of the firm to use price discrimination?

Answer 1

The market structure definitely influences the capacity of the firm to use price discrimination. Price discrimination refers to the practice of charging different prices to different consumers for the same good. Therefore, in order for a firm to be able to price discriminate, it needs at least some degree of market control. For example, under perfect competition, firms have no market power and they can charge only the ongoing market price for all goods to all consumers. So, price discrimination is not possible under perfect competition. However, under monopolistic competition, firms have some degree of market control as they sell differentiated products. So, firms can discriminate price in monopolistic competition to some degree. Higher the market power of firms in a particular market structure, higher is the ability of firms to price discriminate. Under pure monopoly, firms have absolute market power so they can exercise a much higher degree of price discrimination.