The Consequences of Price
Discrimination
We can examine the consequences of price discrimination for firm profits,
output, and consumers.
Price Discrimination and Firm Profits
Our first proposition is about the consequences of price discrimination for
firm profits:
For any given level of output, price discrimination by the firm will provide higher profits than
the profit-maximizing single price.This proposition, which was illustrated in Figure 10-6 , requires only that
the demand curve have a negative slope. To see that the proposition is
correct, remember that a monopolist with the power to discriminate could
produce exactly the same quantity as a single-price monopolist and
charge everyone the same price. Therefore, it need never receive less
revenue, and it can do better if it can raise the price on even one unit
sold, so long as the price need not be reduced on any other. This
proposition is also illustrated in Figure 10-7 in which the firm faces two
market segments and increases its profits by charging a different price in
each segment.