Introduction

Price discrimination is a microeconomic pricing strategy where

identical or largely similar goods or services are sold at different prices
by the same provider in different markets.
Dumping is considered as a form of price discrimination. It occurs
when a manufacturer lowers the price of an item entering a foreign
market to a level that is less than the price paid by domestic customers
in the originating country.
Degree of price discrimination: the extent to which the monopoly firm can
appropriate the consumer surplus from the consumer and add to its profit.

CLASSIFICATION OF PRICE DISCRIMINATION

1st degree price

discrimination

2nd degree price

discrimination

3rd degree price

discrimination
1st Degree Price Discrimination
 Also known as perfect price discrimination

 Monopolist is able to sell each separate unit of the commodity at y

a different price.

 Buyer is not able to maintain his consumer surplus e1

e2
Successfully practiced by doctors, lawyers etc.
p e

price
o x
q
qty
2nd Degree Price Discrimination

 Seller divides buyer in different groups.

 Each groups are charged with different price for same product

 Price which seller charges for each group is that which the marginal
buyer is willing to pay.

 It leaves some surplus to consumer.

 Example : Railway tickets, airways classes etc.

3rd Degree Price Discrimination

• Different sub market will be made

• The price to these sub markets will be fixed based on the

price elasticity of demand in these market.

• Monopolist sells equal quantity in all sub- markets but

charges different level of price
 ESSENTIAL CONDITION FOR PRICE DISCRIMINATION

 Difference in elasticity of demand

 Discriminating firm should be monopolistic

 Market should be segregated

 Restriction on entry

 Purchasing power of the consumer

 Exploiting preference and prejudice of buyers

 Transportation cost

 Legal sanction

 Lack of communication among buyers

 DUMPING
FORMS OF DUMPING

 Persistent dumping: Resulting from international price

discrimination.

 Predatory dumping: Temporary sale of a commodity at

below cost or at a lower price abroad in order to drive
foreign producer out of business, after which price are raised
abroad to take advantage of the newly acquired monopoly
power.

 Sporadic dumping: Occasional sale of commodity at below

cost or at a lower price abroad than domestically in order to
unload an unforeseen and temporary surplus of a commodity
without having to reduce domestic prices.
 EFFECT OF DUMPING
 Decline in output

 Loss in sales

 Decline in capacity utilization

 Price effects

 Reduction of market share

 Decline in productivity

 Reduce return on investment

 Loss of market share

 Adverse effect on cash flow, inventories, employment,

wages, etc.