What Is a Price Discrimination Monopoly?

Esther Ejim

Price discrimination monopoly is an economic term that is used in reference to the ability of a certain category of company to apply different charges to its customers or consumers for the consumption of their goods or services. That is to say that the company in question is able to exert some form of influence that it can leverage as a means of arbitrarily marking the price of a good up or down as it sees fit. This power of the company to fix the price in this manner is mainly due to monopoly, which means that the company has a high degree of influence over the final determination of the product or service due to the fact that it has the exclusive right to sole distributorship or production of the item. Such may be due to an intervention by the government, or it might be the result of something like the possession of a patent or copyright that allows the company to exclusively produce and market the product.

Giving discounts to students based on their background is a form of price discrimination.
Giving discounts to students based on their background is a form of price discrimination.

A price discrimination monopoly mainly means that the company will conduct an assessment of the different categories of its consumer base with the intention of studying their habits and economic situation. The knowledge gained from this analysis will allow such a company to develop a regime of price discrimination monopoly that is targeted toward ensuring that the company is able to meet the needs of the segmented market, while still managing to maximize its profit. An example of this can be seen in the case of a company that makes designer clothes and accessories. In this type of case, the company may have built its brand based on the exclusivity of its product, meaning that the products are aimed at a more exclusive clientele who may have been targeted based on their deep pockets. Since the company will want to make as much profit as possible, it may apply a price discrimination monopoly to the sale of the products.

In this case, the clothes may be sold to clients in the certain locations at a very high price based on the assumption that the people who live there are mostly very rich. The same clothes may also be sold at a discount to another market where the consumers are presumed to be less affluent, but still able to pay a reasonable sum for the clothes. Key to the success of a price discrimination monopoly is for the company to ensure that it has put concrete checks in place that will make it difficult for some of the consumers who may be aware of the disparity in prices to buy the clothes in the cheaper market and proceed to sell them at a profit in the market with the higher price.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Forgot password?