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Chp 26 Problem 9. Module 5

Chp 26 Problem 9. Module 5 - when prices fall However in...

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  9. Suppose a monopolist is practicing price discrimination and a lawsuit against the monopolist forces an end to the practice. Is it possible that the result is a loss in   efficiency? Explain.         When a monopolist practices PD it implies that it charges a different price for each unit (1 st  degree) or blocks of output (2 nd  degree) or from different consumers(3 rd  degree). In every  case the consumer surplus of a consumer is reduced compared to a situation of uniform  pricing. In this sense if uniform pricing is restored  that results in lower prices consumer  surplus rises—efficiency in the system rises. Producer surplus will fall as abnormal profits fall 
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Unformatted text preview: when prices fall. However in specific cases it has been argued that PD is efficient and beneficial to society. For example 2 nd degree PD allows a monopoly transport company to overcharge in the city, but provide cheap travel for villages and far flung areas. If Pd is not allowed then the surplus of city dwellers mat rise, but transport facilities for villages may have to be withdrawn as the lower uniform prices cant sustain operations in these areas. The welfare of consumers in villages falls. So in some cases an end to PD can be an efficiency loss for the whole system....
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