Price Discrimination Possibility
Two fundamental conditions are necessary for the price discrimination to become possible. first price discrimination can occur only if it is not possible to transfer any unit of the product form one market to another. In other words a seller can practice price discriminate in only when heist selling in different markets which are divided in such a way that product sold by him in the cheaper market cannot be resold in the dearer market. Price discrimination by the original seller will break down if this buyers in the cheaper market purchase the product form him ad resell it to the buyers of the dearer market. Buyers in the dearer market of the original seller will instead of buying from him will buy the product from the buyers of his cheapen market. Thus a seller can charge different prices in the two markets when there is no possibility of the product beige transferred from the cheaper market to the dearer market.
Second essential condition for price discrimination to occur is that it should note possible for the buyers in the dearer market to transfer themselves into the cheaper market to buy the product or service at the lower price. For instance fi a doctor is charging a smaller fee from the poor than from the rich then his price discrimination will break down if a rich man cap pretends to be poor and pay a poor man charges to the doctor.
It is clear from above that for the price discrimination to become practicable neither the unit of the good nor the unit of demand (buyer) can be transferred from one market to the other. In other words there should not be any seepage or communication between the two markets. Thus price discrimination depends upon the ability of the seller to keep his tow markets quite separate. If he is not able to keep the different markets separate the price discrimination by him will break down price discrimination is possible in the following cases.
1. The nature of the commodity: the nature of the commodity or service may be such that there is no possibility of transference form one market to the other. The most usual case is the sale of direct personal services like that of a surgeon ro lawyer. The surgeons usually charge different fees from the rich and the poor for the same kind of operation. This is possible for them since the serve has to be delivered personally by the surgeon and therefore it cannot be transferred. Neither is it possible for h rich men to assume to be poor so easily in order to pay the smaller fee.
2. Long distances or tariff barriers: discrimination often occurs when the markets are separated by long distance or tariff barriers so that it is very expensive to transfer goods form a cheaper market to be resold in the dearer market. A monopolist manufacture at Chennai may sell his product in one town say koala at INR 995.9 and in another town say Delhi at INR 746.93 If the transport cost between Delhi and Kolkata is greater than INR 248.98 per unit it will not be worthwhile of the buyers in Delhi to transfer the goods to Kolkata on their own. Similarly if a seller is selling his the buyers in Delhi to transfer he good to Kolkata on their own. Similarly if a seller is selling his goods in tow different markets say in a home market which is protected by a tariff and in a foreign market without a tariff he can take advantage of the tariff barrier an can raise the price of his product in the home market (which is protected by the tariff) as a result he will be selling the product in the foreign market at a lower price than at home. This practice of selling the product at cheaper rates abroad than at home is known as dumping.
3. Legal sanction: in some cases there may be legal sanction for price discrimination. For example an electricity company sells electricity at a lower price if it is used for domestic purposes and at a gagger price if it is used for commercial purposes. In this case customers are liable to be fine if they use electricity for commercial purposes if the sanction has been grated for domestic purposes only. The same is the case with railway which charge different fares for traveling in first class and second class second class compartments though the service of carrying rendered in two classes of compartments slightly differs in each case but the differences in fares are out of proportion to the difference in comforts provided. So this is a clear case of price discrimination by legal sanction. It is unlawful and a criminal offence to travel in the first class with a ticket for the second class.
4. Preference or prejudices of the buyers: price discrimination may become possible due to preferences prejudices of the beers. He same good is generally converted into different variety certain varieties are superior to others. Different names or labels in order to convince the buyer those cretin varieties are superior to other. Different prices are charged for different varieties although they differ only in name or label. In this way the producers are usually able to break up their market and sell the so-called superior varieties to the rich people at higher prices the so-called inferior varieties to the poor people. Sometimes there is some actual difference in the various varieties of the good for instance generally there is a difference in the paper used and quality of the binding between the deluxe edition and ordinary edition of a book but he difference in prices of the two kinds of editions is more than proportional to the extra costs incurred on the de lure edition. So this is a clear case of price discrimination based on the preferences or prejudices of the various buyers of the product. It is worth quoting Joan Robinson in this connection. Various brands of a certain article which in fact are almost exactly alike may be sold as different qualities under and in this way the market is split up and the monopolist can sell what is substantially the same thing at several prices.
5. Ignorance and laziness of buyers: price discrimination may become possible due to ignorance and laziness of buyers. If a seller is discriminating between two markets but the buyers of the dearer market are quite ignorant of that fact the seller is selling the product at a lower price in another market then price discrimination by the seller will persist price discrimination will also persist if the buyers of the dearer market are aware of the seller act or selling the same proud that lower price in another market but due to laziness many to go for shopping in the cheaper market in these cases if the ignorance’s removed or laziness is given up the price discrimination will break down.
6. Price discrimination may become possible when several groups of buyers require the same service for clearly differentiated commodities. For example railways charge different rates of fare for the transport of cotton and coal. In this case rice discrimination is possible since beadles of cotton cannot be turned into loads of coal in order to take advantage of the cheaper rate of transport for coal.
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