Economics †Product Differentiation in Monopoly Essay

Monopolies are firms that are the sole or dominant suppliers of a swell or service in a given mart. And what sets apart monopolies from competitive firms is market power- the ability of a firm to affect the market price. Price discrimination is the business practice of selling the analogous good at different prices to different customers, even though the terms of production is the same for all customers. Only monopolies can practice price discrimination, because otherwise competition would prevent price discrimination.Price discrimination increases the monopolists profits, reduces the consumer surplus and reduces the deadweight loss. (the buyers of the lower-priced product should not be competent to resell the product to the higher-priced market. Otherwise, the monopoly will not be able to maintain price differentials. ) The monopolist must be able to identify segments of the market that are willing to pay different prices, and therefore market its products accordingly. A commo n technique to achieve this is by making it harder to prepare the lower prices, since wealthier consumers value their time more than their money.Some ways the monopolistic firms can implement discriminatory set are Linear Approximation proficiency or Markup Pricing Technique Personalized Pricing extracting the maximum amount a customer is willing to pay for the product. Coupons and Rebates providing coupons to attract more customers or providing personalized discounts.Bulk pricing offering lower prices when customer buys a huge quantity of the same product. Bundling joining products or services together in order to sell them as a single combined unit. Block pricing Charging more for the first set of the product, then less for each surplus product bought by the same consumer. Group Pricing- charging different customers different price base on factors such as race, gender, age, abilities etc. and also psychographic segmentation- dividing consumers based on their lifestyle, p ersonality, values, and social class.Charging different prices based on geographic location. Some products may be cheaper to produce in different places and based on the cost of the good sold the monopolistic firm can charge different prices in order to maximize its profits. Placing restrictions or other inferior characteristics on the low-price good or service, so as to make it sufficiently less attractive to the high price segment Establishing a schedule of volume discounts (block pricing) such that only large-volume buyers (who may have more elastic demands) qualify Using a two-part tariff, where the customer pays an up-front fee for the right to buy the product and then pays additional fees for each unit of the product consumed.