Is Price Discrimination Beneficial to Society?
No straight and simple answer may be given to this question. Price discrimination ~an be beneficial in some cases, whereas it may be detrimental in other cases. In certain cases, price discrimination may be to the advantage of the community, for instance, when a particular service may be very useful to the community. If the price is fixed low enough for the poorer classes, production costs may not be met due to absence of normal profit per unit If the price is fixed too high, the total receipts again may be 10 due to meagre sales. The commodity may, therefore, not be produced t all. At any rate, some output may be held up, because average revenue in a discriminating monopoly is greater than under simple monopoly. “It may happen: for instance, that a railway ouId not be built, or a country doctor would not set up in practice, if discrimination were forbidden. It’ clearly desirable that price discrimination should be permitted in such cases.” If discriminatory pnces are charged, the total receipts may be adequate to meet the total cost with profit. Thus, every one may gain from the production of such a commodity when discriminatory prices are charged. Since discrimination involves raising the price for some people and lowering for some others, it is obvious that price discrimination is beneficial to some and harmful tO others: But ‘the net .effect Oft social welfare will depend on which group the society likes to favour. If the price is lowered for the masses and raised for the ‘classes’ the ~.ociety has nothing to regret. for such an arrangement is obviously intended to promote economic welfare. But, in the case of geographical discrimination. it is also possible that the less clastic market (for whom the price is raised) may be’ the home market,whereas the market abroad may happen to be more elastic and for them the price will; therefore, be lowered
In a case like this, the foreigners gain at the ex- 8. See Robinson., pense of the nationals of the country. Such a price discrimination is clearly detrimental to the community concerned. There is, however, one qualification. If the industry obeys the law of increasing returns (or diminishing marginal costs) “even the less elastic markets will gain from the larger output (at reduced costs) in discriminating monopoly than under simple monopoly. Thus, dumping abroad is likely to lower the price for the home market too and thus benefit the country concerned. Conclusion. Mrs. Robinson thus concludes: “From the point of view of society as a whole it is impossible to say whether price discrimination is desirable or not. From one point of view, therefore, price discrimination must be held to be superior to simple monopoly in ali those cases in which it leads to an increase of output, and these cases are likely to be the more common. But against this advantage must be set the fact that price discrimination leads to a maldistribution of resources as between different uses …. Before it is possible to say whether discrimination is desirable or not, it is necessary to weigh up the benefit from the increase in output against this disadvantage. In those cases in which discrimination will decrease output, it is undesirable on both counts.” Y Dum Plug, In modem market. a number of countries resort to dumping. It is a situation in which a monopolist sells his product in home market at higher price (that is monopolists price) and foreign market at low price (that is competitive price).