Reference to Price discrimination is discussed in this article. We hope you find the article both informative and educative.
Price discrimination is not socially desirable and is not a common phenomenon, especially to a layman but its practice is very alarming even to a common man.
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According to Prof. Stigler, price discrimination is defined as the sales of technically similar products at prices that are not proportional to marginal costs.
This definition shows that a seller is practicing price discrimination when he is charging different prices from different buyers for the different varieties of the same good if the differences in prices are not the same as or proportional to the differences in the costs of producing them.
Yet, the government often practices price discrimination when it controls prices in the private sector, it permits or even encourages price discrimination.
The practice of a seller selling the same product at different prices to different buyers automatically becomes Price discrimination.
The nature of the commodity or service may be such that there is no possibility of transference from one market to the other.
The most usual case is the sale of direct personal services like the service of a lawyer who gives his client different charges depending on their financial capacity.
Solution to Price Discrimination in Nigeria
This can be solved if governmental authorities set a price bridge for such commodities to avoid price discrimination.
The service of a Doctor could also lead to price discrimination, especially at private hospitals (private sector) but this could be avoided if governmental bodies create and mold the public sector to compete effectively with the private sector. This could cause the private sectors to reduce prices or adjust to the point of equilibrium.
Discrimination often occurs when the markets are separated by long-distance or tariff barriers so that it is very expensive to transfer goods from a cheaper market to be sold in the dearer market.
Thus, when the producer charges a lower price in the world market than in the home market, this price discrimination is called dumping in the world market.
To solve this problem, policies should be set to regulate tariff barriers, especially in the favor of producers in the domestic or home market.
When high tariff barriers are high, automatically the domestic prices will be higher than the prices (relative to them) in the world market.
Conversely, when the tariff barriers in the domestic market are low, the prices of those commodities will be low and price discrimination can be solved.
Though tariff barriers serve as taxes to governmental authorities mostly the burden of these taxes falls on the customers through high prices and if removed the producer could not have to set different prices to recover from the tariff barriers and make a profit rationally.
Also, the ignorance and laziness of buyers could lead to price discrimination. In a case where the buyer has no pre-knowledge of the commodity, the sellers may take advantage of this ignorance and influence the prices.
In these cases, if ignorance is removed or laziness is given up, price discrimination will break down.
Generally, if price discrimination must break down two decisions have to be duly considered; first, production, and secondly distribution.
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Although price discrimination is profitable in cases where it leads to an increase in output it affects the social welfare of the people relative to their income.