10.3 Price Discrimination

So far in this chapter, we have assumed that the monopolist charges the
same price for every unit of its product, no matter where or to whom it
sells that product. But as we will soon see, a monopolist always finds it
profitable to sell different units of the same product at different prices
whenever it gets the opportunity. In principle, the same is true for any
firm that faces a negatively sloped demand curve. Because this practice
is prevalent both for monopoly and for markets in which there are a few
large sellers, the range of examples we will discuss covers both types of
market structure.

Airlines often charge less to people who stay over a Saturday night than
to those who come and go within the week. In countries in which medical
services are provided by the market, physicians in private practice often
charge for their services according to the incomes of their patients. Movie
theatres often have lower admission prices for seniors and children. Bus
and transit passes are usually cheaper for students than for others.
Electric companies typically sell electricity at one rate to homes and at a
different rate to businesses.

Price discrimination occurs when a producer charges different prices
for different units of the same product for reasons not associated with
differences in cost. Not all price differences represent price discrimination.
Quantity discounts, differences between wholesale and retail prices, and

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