Is it possible for a company to successfully use price discrimination when it is in an industry with perfect competition? Or is some form of monopolistic tendency a requirement? (ie: Monopolistic Competition) The CFAI text suggests that most price discriminators are not monopolies. I thought companies in perfect competition face perfectly elastic demand and only receive the market price. Could someone clarify?
bru4ca Wrote: ------------------------------------------------------- > The CFAI text suggests that most price > discriminators are not monopolies. I thought > companies in perfect competition face perfectly > elastic demand and only receive the market price. > Could someone clarify? I would venture to say that most price discriminators are monopolistic competitors. Perfect competition doesn’t allow for price discrimination because their products are commodities, and therefore sell at market prices. Monopolistic competitors differentiate their products, and therefore have room to discriminate on prices. There are also far more monopolistic competitors out there than there are monopolies, which would explain why most price discriminators are not monopolies.
I agree with Gangrel that price discrimination is confined to monopolies and monopolistic competitors, but contend this is due also to market friction/barriers-to-entry rather than only product differentiation. Price discrimination requires that firms 1) effectively distinguish consumer segments w/ different price elasticities of demand 2) prevent resale of their good/service between consumer segments The second requirement can’t be achieved in a perfectly competitive market because there’s no barrier preventing the low-cost customer from entering the market to resell the product for an arbitrage profit. We typically see price discrimination on airlines (a notable exception is Southwest) and in movie theaters. Note that it would be difficult for me to resell my airline ticket or try to sneak into a movie using a child’s or senior-citizen’s discounted ticket. In my airline example, there’s admittedly some product differentiation to consider: yes, everyone’s on the same plane, but the seats and service are different between classes. However, at the movie theater, everyone’s consuming the same service but it may be difficult to resell tickets between consumer segments. Wikipedia has a pretty good discussion on this. http://en.wikipedia.org/wiki/Price_discrimination Just my $0.02.
so does elreg: http://www.channelregister.co.uk/2007/09/27/microsoft_parallel_import_pyramid/ Perfect example of monopoly enforcing price discrimination by using an exchange rate of £1 to the yankee yen…