Why do price discrimination

Monopoly price discrimination. Practice: Price discrimination. Next lesson. Current timeTotal duration Google Classroom Facebook Twitter. On this axis right over here I will have quantity of bottles I produce per week. Let's say that this is , this is , and then This is quantity of bottles per week, per week and this is dollars per bottle. Let's think about the demand curve here. The demand curve for my type of wine, we're going to assume this is highly differentiated wine, the demand curve looks something like that.

Now, I'm doing it as a straight line for simplicity. The demand curve looks like that. Since I said differentiated, this is not going to be perfect competition.

I have a monopoly in my type of wine, so this isn't the market for wine generally, this is a market for my wine. Bachelor's Programs. All Programs. Remote Jobs.

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Peak and off-peak pricing is common in the telecommunications industry, leisure retailing and with utility companies. For example, telephone and electricity companies separate markets by time - there are usually three rates for telephone calls: a daytime peak rate, an off peak evening rate and a cheaper weekend rate.

Electricity suppliers also offer cheaper off-peak electricity during the night. The reason for this price discrimination is that at off-peak times there is plenty of spare capacity whereas at peak times when demand is high the supplier may experience capacity constraints. Leisure Centres on the other hand will often charge more for evening and weekend attendances because this is when the majority of the public want to use the facilities.

They want to encourage more users to attend during weekdays by charging less for admission during off-peak times. Charging different amounts for the same item to different people or to different groups of people is price discrimination - and as long as you can justify why you are charging different prices, such as implementing "children's meals" to attract families, it is perfectly legal.

Similarly, wholesalers can offer price breaks for quantity purchases and they can offer customised merchandise but they cannot influence competition by limiting these offers to a few select retailers because doing so would harm excluded retailers.

Customers want to be treated fairly. If they find out they are being charged more online than Joe Bloggs down the road then they rightly get upset. Privacy is another issue. Consumers already have their doubts and it is essential for retailers to try to maintain trust. These consumers may be able to take advantage of companies with geographic price differentials. Consumers also constantly utilise data themselves through price checking.

Retailers also need real-time data and analytics to stay ahead of the curve. They are increasingly investing in dynamic pricing technologies that allow them to optimise prices based on changes in the marketplace. Dynamic pricing can also be buyer-friendly and result in a win-win situation for retailers and consumers i. Price discrimination may enable a business to turn a loss into a small profit - or a business activity can keep going, rather than close down.