Elements of Price Discrimination

Elements of Price Discrimination

Leroy Shepherd Jr.

Webster University

Abstract

Price discrimination is defined by business dictionary.com as selling the same product to different buyers at different prices depending on order-size lot and/or their geographical location.

Price discrimination or the term perfect price discrimination is charging each customer as much as that customer will pay. For price discrimination to exist, there must be monopoly or monopsony (single buyer) power somewhere in the market. There also must be some way for the seller to differentiate customers and to prevent some of them from buying at a low price and reselling the good at a higher price. “Price discrimination is known by several other terms “differential pricing,” “tiered pricing,” “Dynamic pricing” and smart pricing” these are more modem terms for variants of the same basic practice” (Elegido, 2011, p. 633). This paper purposes to explore the subject of price discrimination. In doing so it will discuss the origin of price discrimination as well as the various types of price discrimination, it will explore discrimination that is considered an essential element of business, it will also discuss those elements of price discrimination that are illegal and that are for the purpose of personal gain at the risk of others. Additionally this paper will discuss the Ethics of price discrimination from the view point of the average customer as well as the merchant dealers.

The Origin of Price Discrimination

Price discrimination, also known as monopoly price discrimination, was a notion first developed by Jules Dupuit. A more adaptable example of the theory of price discrimination came later, from Arthur Cecil Pigou who was a British welfare economist. Pigou set the criteria between first, second, and third degree price discrimination. First degree price discrimination was determined to be the most complete; it comprised charging each customer the maximum price that they...