1 Should companies be allowed to price discriminate Do you a

1. Should companies be allowed to price discriminate? Do you agree with colleges price discriminating (charge different tuition for different students)? Give 2 examples where companies price discriminate.

2. Should drug companies be allowed to have a monopoly? What are the trade offs with drug company monopolies?

3. What would your public policy be towards monopolies? explain.

Solution

Price discrimination basically means charging different prices to different customers. Price discrimination may not always be a bad idea as it might increase welfare. For example if the company sells juice bottles which cost $1 at a price of $1.5. People who are more thirsty (for examply people playing a football match) than some others might be willing to pay a higher price, and there shouldn\'t be any harm if the company charges them more. However, if the company discriminates or charges people differently simply because of a difference in their skill set, ethnicity etc, that can be called as \'bad price discrimination\'. Hence, for similar reasons I do not agree with different tuition charges for different students if it is based on a student\'s ability. Another example can be different prices for photographs at touristy places.

2) The bad aspect of allowing them to have a monopoly is that they would be able to charge a 100 times higher price than the equilibrium price in the market. This would have an adverse impact on the health conditions in a society. However. a small margin is important (maybe in terms of \'reasonable\' patents) to support the manufacturers of such drugs. Also, unless there is some sort of incentive for them to employ their resources in research, they wouldn\'t be too keen on doing it.

3) Monopolies under any of the industries should not be allowed as it would only mean a transfer of public welfare to the firms. Hence, monopolies should not be encouraged.