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Price Discrimination
A monopolist may be able to engage in a policy of price discrimination. This occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated with the costs of production. It is important to stress that charging different prices for similar goods is not price discrimination. For example, price discrimination does not does not occur when a rail company charges a higher price for a first class seat. This is because the price premium over a second-class seat can be explained by differences in the cost of providing the service.
CONDITIONS REQUIRED FOR PRICE DISCRIMINATION TO WORK
There are basically three main conditions required for price discrimination to take place.
Monopoly power
Elasticity of demand
Separation of the market
Some examples worth considering include:
Ocean Park Hong Kong : Admission Price (HK$)
General Admission
Student Pass
SmartFun Gold Pass
SmartFun Silver Pass
Adult
$250
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$695
$545
Full Time Student (12 or above)
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$485
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Child (3-11)
$125
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$350
$270
Under 3
Free
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Over 65 (with HKID)
Free
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Holder of Registration Card for people with Disabilities
Free
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The aims of price discrimination
It must be remembered that the main aim of price discrimination is to increase the total revenue and/or profits of the supplier! It helps them to off-load excess capacity and can also be used as a technique to take market share away from rival firms.
Some consumers do benefit from this type of pricing - they are "priced into the market" when with one price they might not have been able to afford a product. For most consumers however the price they pay reflects pretty closely what they are willing to pay. In this respect, price discrimination seeks to extract consumer surplus and turn it into producer surplus (or monopoly profit).
Reference :
http://www.tutor2u.net/economics/content/topics/monopoly/price_discrimination.htm