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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.
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- Spring '10
- abijian
- Monopoly, Readalot
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