1. Market separation (to avoid seepage or arbitrage) – a monopolist must be able to keep the markets separate either in terms of distance or time to avoid the product being bought in the cheaper market and sold in the more expensive market at prices below the monopoly price.
2. Difference in elasticities of demand in different markets – this makes it possible the charging of a higher price in the inelastic demand market and a lower price in elastic demand market.
3. Total control over production (supply) of a product which has no close substitute. An example of price discrimination are the bus fares charged by KBS at different times of the day. In the mornings and evenings (peak hours) the demand for transport is higher and more inelastic than during the rest of the day. Hence fares are higher in the morning and in the evening than during the rest of the day.
Wilfykil answered the question on February 7, 2019 at 08:10
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As part of the analysis, you establish that the total demand for the firm‟s output is given by the
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and the demand for the firm‟s output in the two markets is given by the following equations:
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P2 = Price charged in Market 2
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