Principles of Economics- Mankiw (5th) 326 - 336 PA R T F I V E F I R M B E H AV I O R A N D T H E O R G A N I Z AT I O N O F I N D U S T R Y P R I C E D

336 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY PRICE DISCRIMINATION So far we have been assuming that the monopoly firm charges the same price to all customers. Yet in many cases firms try to sell the same good to different customers for different prices, even though the costs of producing for the two customers are the same. This practice is called price discrimination. Before discussing the behavior of a price-discriminating monopolist, we should note that price discrimination is not possible when a good is sold in a com- petitive market. In a competitive market, there are many firms selling the same good at the market price. No firm is willing to charge a lower price to any cus- tomer because the firm can sell all it wants at the market price. And if any firm tried to charge a higher price to a customer, that customer would buy from another firm. For a firm to price discriminate, it must have some market power.