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Price discrimination is thus very common in services where resale is not possible; an example is student discounts at museums: Students may get lower prices than others, but do not become resellers, because the service is consumed at point of sale. Another example of price discrimination is intellectual property, enforced by law and by ...
Other firms are unable to enter the market of the monopoly Single seller/ firm: The monopolist is the only seller in the market that produces all the outputs meeting all the demands of the market. Price discrimination: The firm in monopoly can change the price and quantity of the product as they please.
Generally, when a firm operating in an oligopolistic market adjusts prices, other firms in the industry will be directly impacted. The graph below depicts the kinked demand curve hypothesis which was proposed by Paul Sweezy who was an American economist. [29] It is important to note that this graph is a simplistic example of a kinked demand curve.
Predatory pricing is a commercial pricing strategy which involves the use of large scale undercutting to eliminate competition. This is where an industry dominant firm with sizable market power will deliberately reduce the prices of a product or service to loss-making levels to attract all consumers and create a monopoly. [1]
Price discrimination may improve consumer surplus. When a firm price discriminates, it will sell up to the point where marginal cost meets the demand curve. Some conditions are required for price discrimination to exist: Firms must face a downward-sloping demand curve, i.e. the demand for a product is inversely proportional to its price.
Vertical integration: In the case of double marginalization, both firms within the same supply chain are increasing their prices beyond their marginal costs which create deadweight losses. By vertically integrating, these deadweight losses will be eliminated and the vertically integrated company can incorporate a pricing strategy that is ...
As a result of their significant market power, firms in oligopolistic markets can influence prices through manipulating the supply function. Firms in an oligopoly are mutually interdependent, as any action by one firm is expected to affect other firms in the market and evoke a reaction or consequential action. [3]
The purpose of price discrimination is to transfer consumer surplus to the producer. [46] Consumer surplus is the difference between the value of a good to a consumer and the price the consumer must pay in the market to purchase it. [47] Price discrimination is not limited to monopolies.