3.4.5 Monopoly and Price Discrimination (Edexcel A-Level Economics Teaching PowerPoint)
Last updated 13 Sept 2023
This editable and downloadable PowerPoint covers Price Discrimination in a monopolistic market.
Price discrimination is the practice of charging different prices to different customers for the same product or service. In a monopoly, this can mean that the monopolist sets different prices based on the customers' willingness to pay or their ability to pay. For example, a monopolist might charge higher prices to wealthier customers, while offering discounts to customers with lower incomes. This strategy allows the monopolist to maximize profits by capturing the most value from each customer segment. It's controversial, as some argue it's unfair to charge different customers different prices for the same product.
Here are some common examples:
- Airlines: Airlines often charge different prices for the same seat depending on the time of booking and the customer's willingness to pay.
- Cinemas: Many cinemas offer discounts for students, seniors, or matinee showings.
- Retailers: Some retailers offer loyalty programmes or special discounts for customers who make frequent purchases.
- Prescription drugs: Drug companies often charge different prices in different countries for the same drug.
Monopolists have something called "market power" - the ability to influence prices without worrying about competition. This allows them to charge different prices to different customers because there's no one else offering the same product or service. Without competition, consumers have fewer options, so they're more likely to pay higher prices if they need or want the product. Also, a monopolist can use their market power to keep new firms out of the market, further increasing their ability to discriminate. Basically, a lack of competition lets the monopolist call the shots on pricing.