Under what conditions can sellers engage in price discrimina

Under what conditions can sellers engage in price discrimination?

Solution

Price discrimination is the practice of charging different price from different customers for the same product or service. The conditions required for price discrimination are

1) The nature of the commodity or service should be such that there is no possibility of transfere it from one market to the other.

2) The markets must be separated by large distance or tariff barriers, so that transfer goods from a cheaper market to dearer markets is not possible.

3) The consumers must be ignorant or not aware that in one part of the market prices are lower than in the other part.

4) The elasticity of demand should be different in different markets.

5) There must be no government regulation to restrict price discrimination by the firms.