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Price discrimination means charging different prices and it takes various forms according to whether the basis is customer, product, place or time. These are illustrated as under:
(a) Price discrimination on the basis of customer: In this case, the same product is charged at different prices to different customers. It is, however, potentially disruptive of customer relations.
(b) Price discrimination based on product version: In this case, a slightly different product is charged at a different price regardless of its cost-price relationship. If, for example, a table with wooden top can be sold at $400, a table with sunmica top costing $175 extra is sold at $575. The higher premium in the latter case does not necessarily reflect the higher production cost.
(c) Price discrimination based on place: An example of this method is the seats in cinema theater where the front seats are charged at lower rates than the back seats.
(d) Price discrimination based on time: An example of this method is the practice of giving off-season concession in sale of fans or refrigerators just after the summer season.
(b) Price discrimination based on product version: In this case, a slightly different product is charged at a different price regardless of its cost-price relationship. If, for example, a table with wooden top can be sold at $400, a table with sunmica top costing $175 extra is sold at $575. The higher premium in the latter case does not necessarily reflect the higher production cost.
(c) Price discrimination based on place: An example of this method is the seats in cinema theater where the front seats are charged at lower rates than the back seats.
(d) Price discrimination based on time: An example of this method is the practice of giving off-season concession in sale of fans or refrigerators just after the summer season.
Price discrimination is possible if the following conditions are satisfied :
(a) the maker must be capable of being segmented for price discrimination;
(b) the customers should not be able to resell the product of the segment paying higher price; and
(c) the chance of competitors’ underselling in the segment of higher prices should not be possible.
(a) the maker must be capable of being segmented for price discrimination;
(b) the customers should not be able to resell the product of the segment paying higher price; and
(c) the chance of competitors’ underselling in the segment of higher prices should not be possible.
