By increasing the seller’s profits, price discrimination transfers income
from buyers to sellers. When buyers are poor and sellers are rich, this
transfer may seem undesirable. However, as in the case of doctors’ fees
and senior citizens’ discounts, discrimination sometimes allows lower-
income people to buy a product that they would otherwise be unable to
afford if it were sold at the single price that maximized the producer’s
profits. In this case some consumers are made better off by the firm’s
decision to price discriminate.
There is no general relationship between price discrimination and consumer welfare. Price
discrimination usually makes some consumers better off and other consumers worse off.2 Price discrimination alters the firm’s marginal revenue curve. In Figure 10-6, the more the firm is
able to set multiple prices, the more the (modified) MR curve moves toward the demand curve. In
the extreme case where the firm charges a different price for every unit, the MR curve becomes
coincident with the demand curve. Since price discrimination effectively moves the MR curve
upward, and thus it intersects the MC curve at a higher level of output, we see that price
discrimination generally leads to an increase in output.