Discriminating monopolies are those that are able to charge different prices to different consumers for the same product. This is usually done by targeting specific groups of consumers and offering them a discount or a premium price. For example, a monopoly might offer a lower price to students or seniors, or a higher price to business customers.
Discriminating monopolies are able to extract more money from consumers than a non-discriminating monopoly. This is because they are able to charge each group of consumers a price that is closer to their willingness to pay. For example, a student might be willing to pay $10 for a textbook, while a business customer might be willing to pay $100. By charging the student $10 and the business customer $100, the monopoly is able to extract $90 from the market.
Discriminating monopolies are often able to get away with this type of pricing because it can be difficult for consumers to compare prices. For example, a student might not know what price a business customer is paying for the same textbook. This lack of information can allow the monopoly to charge each group of consumers whatever price they are willing to pay.
Discriminating monopolies can also be difficult to regulate. This is because regulators often have a difficult time determining whether the different prices charged by the monopoly are fair. For example, a regulator might not know whether a student is really willing to pay $10 for a textbook, or whether the business customer is really willing to pay $100. This lack of information can make it difficult to determine whether the monopoly is charging too much or too little. How can we prevent price discrimination? There are a few ways to prevent price discrimination:
1. Establish a minimum price below which no discounts can be offered.
2. Prohibit discounts for large purchases, or limit the size of the discount that can be offered.
3. Require that all customers be offered the same discount.
4. Prohibit discounts for cash payments.
5. Require that all customers be charged the same price. How a price discriminating monopoly determines its equilibrium price and output? In a price discriminating monopoly, the equilibrium price and output is determined by the interplay between the demand for the good and the marginal cost of production. The key to understanding how this works is to realize that the price discriminating monopoly has two different types of customers: those who are willing to pay a higher price for the good (the "high-end" customers), and those who are only willing to pay a lower price (the "low-end" customers).
The price discriminating monopoly will set a higher price for the good for the high-end customers and a lower price for the good for the low-end customers. The reason for this is that the high-end customers are willing to pay more for the good, so the price discriminating monopoly can charge them a higher price and still make a profit. The low-end customers are only willing to pay a lower price, so the price discriminating monopoly has to charge them a lower price in order to get them to buy the good.
The price discriminating monopoly will also produce a different quantity of the good for the high-end customers than for the low-end customers. The reason for this is that the high-end customers are willing to pay a higher price, so the price discriminating monopoly can afford to produce more of the good for them. The low-end customers are only willing to pay a lower price, so the price discriminating monopoly has to produce less of the good for them.
In summary, the equilibrium price and output for a price discriminating monopoly is determined by the demand for the good and the marginal cost of production. The price discriminating monopoly will charge a higher price to the high-end customers and a lower price to the low-end customers, and will produce a different quantity of the good for the high-end customers than for the low-end customers.
What are the 3 types of price discrimination?
There are three types of price discrimination: first-degree, second-degree, and third-degree.
First-degree price discrimination is when a firm charges a different price to each consumer based on their willingness to pay. The firm knows exactly how much each consumer is willing to pay and charges them that amount.
Second-degree price discrimination is when a firm charges a different price based on how much of the good the consumer is buying. The firm doesn't know the exact willingness to pay of each consumer, but knows that consumers who buy more are willing to pay more.
Third-degree price discrimination is when a firm charges a different price based on which market the consumer is in. The firm doesn't know how much the consumer is willing to pay, but knows that consumers in different markets are willing to pay different amounts.
Why price discrimination is possible in monopoly?
Price discrimination is possible in monopoly because the monopolist is the only seller in the market and therefore has complete control over price. The monopolist can charge different prices to different customers based on their willingness to pay, which allows the monopolist to capture more of the consumer surplus.
Price discrimination can also be used as a tool to deter entry by new firms, as the new firm would need to charge a lower price in order to compete, which would erode their profits. Which of the following best defines price discrimination? Price discrimination is a pricing strategy in which a company charges different prices for the same product or service, based on factors such as the customer's location, demographics, or purchase history.