PRICE DISCRIMINATION

Price Discrimination

Price Discrimination

Introduction

The paper discusses the article “The Ethics of Price Discrimination” published in the Business Ethics Quarterly in 2011. The article talks about price discrimination, its different categories and degree and relates the same with its ethical perspective. Price discrimination is a pricing policy of providers to demand different prices for the same service.

Discussion

Price discrimination is to assign different prices to the same goods according to various parameters that the company set. It serves to maximize revenue. It is a practice of charging different prices for different amounts of the commodity at different times, from consumers or in different markets, especially when there are no cost justifications for such price differences. It is a policy followed by companies to impose different prices for the same product to different customers. For producers, the ideal world where they can charge a different rate to each customer which is mainly the price the customer is willing to pay. This would increase the producers' revenues. However, the policy of price discrimination is possible in the case of market segmentation whereby the equilibrium price in each market these markets is different from the equilibrium price in other markets, possibly due to differences in consumer tastes and perhaps because of that the company enjoys strong position in some of these markets than that of other markets.

Monopolists engage in price discrimination if it means increasing their profits. Discriminatory prices can be used to expand production, thus providing economies of scale. Discrimination occurs when the perfect supplier for every consumer knows everything and asked the maximum price he is willing to pay. It then captures the entire surplus from the transaction. Perfect discrimination can also be based on the knowledge of any characteristic perfectly correlated with willingness to pay. Price discrimination is often used by Western ...