Price discrimination refers to charging of different consumers by the monopolist. it is possible only when following conditions prevail in the market.
The existence of Monopoly: Price discrimination is also called discriminating monopoly. It is evident that price discrimination is possible only under conditions of monopoly.
Separate market: Another condition necessary for discriminating monopoly is that there must between or more markets which can be separated and can be kept separate. It fin be possible only if a unit if the commodity could not be transferred from low priced market to high priced market nor could the buyer move from expensive market to cheap marked. In other words unit of demand should not move from one market to the other, otherwise, goods will be purchased from the cheap market and sold in the clear market. In the way, that difference in price will disappear which the monopolist wanted to maintain.
The difference in the elasticity of Demand: Price discrimination is possible when the elasticity of demand will be different in different markets. The monopolist will fix higher price per unit in the market where demand is inelastic and lower price per unit in the market where demand is elastic. In this way alone he can increase his revenue. There will be no fear or any change in demand. If the elasticity of demand is the same different markets, then price discrimination will either not be possible or will be detrimental.
Expenditure in dividing and sub-dividing market to be minimum: The expenditure incurred by the monopolist in dividing and the sub-dividing market should be the least. If his expenditure neutralizes elasticity of demand, the objective of price discrimination would not be fulfilled.
Commodity to order: If a consumer gets a commodity made to order then it is possible for the producer.or seller to practice price discrimination. Let suppose that a furniture marker ordinarily sells a sofa-set made by him at TK. 5000 per set, but if a consumer wants a sofa s made to order, then the furniture maker may charge TK 6000 per set.
Product differentiation: A monopolist by changing the packing, name, level etc of the good can charge different prices although intrinsically the good is of the same quality.
