Question

What example of effective or ineffective price discrimination do you see online or in a community? Explain why the monopolist chooses to follow this business strategy.

Answer 1

Effective price discrimination can be practised by a physician who knows the income and elasticity of demand of his patients . He can charge different fees from different people . Price discrimination is ineffective in some cases , such as in case of seasonal discounts in flight tickets . Some people avail these seasonal discounts and buy tickets in bulk for the whole year . So he can travel with a lower priced ticket even when tickets are costly in peak season . Higher prices are only paid by people who face emergency or unplanned travel situations .

Monopolist like a physician in a community knows that there is no substitute physician present , so people have highly inelastic demand . People belonging to higher age group will have more ailments and hence more inelastic demand than people who are relatively younger , so this physician price discriminates in order to maximize producer surplus by extracting as much consumer surplus as possible .