1. Conditions necessary for Price
Discrimination
1 Element of monopoly power.
There must be some barriers to entry to the
market. If this were not so, new firms could
supply a similar good on the higher price market,
at a lower price. The monopolist would then have
to abandon his discriminatory pricing policy, or
lower the price charged.
2 Distinct and separate markets.
The markets must be distinct and separate.
Consumers in the market where price is relatively
low must not be able to resell to consumers in the
high priced market. Otherwise the transfer of
goods purchased in the lower priced market to
the higher priced market would make the
charging of different prices in the two markets
impossible.