Price Discrimination – A Report      

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Price Discrimination

According to the dictionary, discrimination is to make a choice, a distinction. The word “Discrimination” has become so closely associated with practices such as racial discrimination or sexual discrimination that the word has insidious connotations regardless of the adjective attached to it. A case in point is price discrimination. 

The views of the economists on the topic of price discrimination varies a great deal. Some of them are enlisted below:

 is the practice of charging different customers different prices for the same good. One strategy for implementing this is to produce two distinct qualities of product - a high-quality product and a damaged or crimped version. In addition to providing a justification for the price differential, this strategy also prevents arbitrage that might erode the gains from price discrimination in the first place.

                                                                                          (Lipsey and Chrystal,            )

        

In the words of Alfred Marshal, A seller with a degree of monopoly power has the ability to price discriminate.  This means being able to charge a different price to different customers.  

The Robinson-Patman Act provides for general measures against price discrimination. The RPA was introduced to protect the small businesses and towns from major retailers.
The Robinson-Patman Act  was enacted in large part to protect the so-called mom and pop grocery stores against the bigger companies. It was discovered that by purchasing in large quantities directly from the source, it could sell the food at a lower price. Given the obvious adverse effect on smaller grocers and wholesalers, they lobbied for a law and as a result, the Robinson-Patman Act.

While the Robinson-Patman Act contains several provisions, some dealing with illegal brokerage and discriminatory advertising or promotional allowances, the main thrust of the act is to make it illegal for a supplier to charge lower prices to certain customers simply because they purchase in larger quantities than other customers. This basic prohibition against price discrimination (as it is known) is contained in Section 2(a) of the Robinson-Patman Act (the Act). While there are some limited exceptions to this general prohibition, quantity discounts are essentially illegal unless all competing customers or purchasers can take advantage of the discounts.

                                                                                                   (Business laws, 1999)

In my opinion price discrimination is a practice of charging different prices to different buyers or groups of buyers for essentially the same product, where the price differences

                                                                                                                                         

                                                                                                                                            Price Discrimination – A Report      

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do not simply reflect the cost difference associated with serving buyers and markets.  It is done with a view of profit maximization along-with capturing the maximum possible market share.

Types Of  Price Discrimination.

There are three main classes, each with differing intra-type examples:    

  1. Personal Discrimination - which is based on differences among individual consumers;      
  2. Group Discrimination - where inter-group differences are the distinguishing factor; and  
  3.  Product Discrimination - where different products are priced in a discriminating manner.                              

                                                                                             (Scherer and Ross, 1990)

Personal Discrimination 


1.
Haggle-every-time: each transaction is a separately negociated bargain. Examples: Middle Eastern bazaars, and new/used car sales.

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2. Size-up-their-income: wealthier (individual) customers are expected to possess more inelastic demand and are charged more than less affluent consumers. Examples: legal and medical services.

3. Measure-the-use: customers who use a product more are charged a higher price that is not proportional to any difference in costs. Example: Xerox machine rental charges.


Group Discrimination 


1.
Dump-the-surplus: goods in excess supply are exported at reduced prices, to prevent depressing domestic monopoly prices. Example: export market dumping e.g. televisions, computer chips, etc.

2. Promote-new-customers: new customers are offered lower prices than existing customers to develop new brand loyalty. Examples: newspapers and magazines.

3. Keep-them-loyal: special ...

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