Critical Evaluation of the Practise of Price Discrimination Within the Cellular Industry in South Africa

Introduction

Telecommunications is key in today's world whether it be on a fixed line basis or that of mobile communications. The early 1990's was the birth of mobile telecommunication services in the South African market. Telkom, a fixed line telecommunications monopolistic provider, was dominant until it introduced Vodacom, a cellular service provider which had 50% of its capital owned by Telkom itself. This essay will critically evaluate price discrimination practices within the cellular industry in South Africa. Price discrimination will be defined and analysed into its different forms. Thereafter the essay will evaluate price discriminatory practices in the South African industry of cellular service providers.

Price discrimination

The practice of price discrimination is seen in many industries and firms as it is said to have a large impact on the profits of firms. Price discrimination is defined as charging different consumers different prices for the same or similar product (Elegido 2009: 01). Price discrimination should not be confused with that of product differentiation, which according to Geoff Riley (2006:09), “the differentiation of the product gives the supplier greater control over price and the potential to charge consumers a premium price because of actual or perceived differences in the quality or performance of goods or service.” In order for price discrimination to triumph there are two conditions that have to be in existence. The first condition is that the producer must be able to identify each consumer's reservation price, which is the maximum price that a consumer is willing to pay for a specific good or service (Pindyck, Rubinfeld 2009:393), or have a reliable insight to what the reservation price may be. The second condition is that the firm must be able to avoid market seepage, defined as a practice whereby consumers who have purchased the product at a low price must not be able to resell the product at a higher price to those...