Price discrimination


Institution Definition

Price discrimination occurs when customers in different market segments are charged different prices for the same good or service, for reasons unrelated to costs. Price discrimination is effective only if customers cannot profitably re-sell the goods or services to other customers. Price discrimination can take many forms, including setting different prices for different age groups, different geographical locations, and different types of users (such as residential vs. commercial users of electricity). Where sub-markets can be identified and segmented then it can be shown that firms will find it profitable to set higher prices in markets where demand is less elastic (...). This can result in higher total output, a pro-competitive effect. Price discrimination can also have anti-competitive consequences. For example, dominant firms may lower prices in particular markets in order to eliminate vigorous local competitors. However, there is considerable debate as to whether price discrimination is really a means of restricting competition. Price discrimination is also relevant in regulated industries where it is common to charge different prices at different time periods (peak load pricing) or to charge lower prices for high volume users (block pricing). © OECD

See Discriminatory practices

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