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Price discrimination occurs when a firm sells the same product in two or more markets at different prices. In other words consumers pay different prices for the same goods.
To price discriminate the following conditions need to exist:
• the firm must have some market power, not be a price taker
• the firm must be able to separate the markets
• buyers in different markets must have a different elasticity of demand
• firms must be able to prevent reselling by those buyers who paid the low price to those who would pay the higher price
If these conditions exist, firms can charge those with less elastic demand higher prices and therefore gain higher levels of revenue. If the increased revenue from price discrimination is greater than the addition to cost then the firm will gain higher levels of profit
marlinbito answered the question on July 5, 2018 at 15:11
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