Generally, a manufacturer charges only one price for one product from all the consumers but sometimes, a manufacturer charges different prices from different consumers for one and the same product. It is known as price discrimination.
It has been the experience that a monopolist charges different prices from different consumers for a single product, provided the consumers are from different markets or belong to different groups.
The term Price Discrimination has been defined as under:
The act of selling the same article, produced under single control, at different prices to different buyers is known as price discrimination.
An analytical study of the above definitions makes it clear that when a manufacturer charges different prices for a single product from different consumers or buyers, it is called price discrimination.
It cannot be possible under perfect competition.
Types of Price Discrimination
Some of the important types of price discrimination are as follows:
1. Personal Price Discrimination
When some customers are charged the lower price on the basis of personal relations with them, it is called personal price discrimination.
For examples, a lower price may be charged from shareholders of a company, employees of an enterprise and friends and relatives of the proprietor, etc.
2. Geographical Price Discrimination
When different prices are charged from the customers of different places, it is called geographical price discrimination.
For example, the price of a product may be different for eastern states, western states, and southern states.
The prices for delivering a product at different places of a state may also be different.
3. Price Discrimination According to Use
For example, the rates of electricity for domestic use and for industrial use are different.
4. Class Price Discrimination
When a product is used by different classes of consumers, different rates may be determined for the product for these classes.
For this, the product may be packed in different packing with different labels.
5. Time Price Discrimination
When the rates of a product are different for different times, it is called time price discrimination.
For example, the rates of telephone and telegraph services are different for night and day. price discrimination according to facilities
When different prices are charged from different consumers on the basis of facilities provided to the consumers, it is called price discrimination according to facilities.
For example, Indian railway charges different fares for the second class journey, first-class journey, and A conditioned journey.
6. Price Discrimination by Offering Discounts
When the price is price discriminated on the basis of the discount, it is called price discrimination by offering discounts.
For example, such discount may be given to those consumers who purchase the product on cash payment; special discount may be offered to the consumers who purchase the product in a certain quantity and different prices may determine for dealers.
Objectives of Price Discrimination
Main objectives of price discrimination may be explained as under:
- To charge different prices from different consumers according to their paying capacity, such as – to charge more price from rich consumers and less price from poor consumers.
- To charge different prices from different consumers on the basis of their geographical locations.
- To charge different prices from different consumers, on the basis of use of the product by these consumers, such as – when the product is being purchased to be used as a medicine, it is sold at a higher price and when it is being purchased for general consumption, it is sold at a lower price. 14 Essential Features and the Importance of Product (Explained).
- To charge different prices from different consumers of different areas on the basis of competition prevailing in the area, such as- if there is no competition in a particular area, the product can be sold at a higher price and if there is tough competition in another area, the product can be sold at a lower price.
- To discriminate in the price with an object of entering into a new market or with an object of expanding the market.
- To discrimination in the price with an object to discourage possible competition in a particular area.
- To discriminate in the price with an object of making maximum utilization of the capacity of the plant.
Thus, now you know the Types and Objectives of Price Discrimination.