The Economic Theory of Second and Third Degree Price Discrimination Essay

The Economic Theory of Second and Third Degree Price Discrimination - Essay Example The price discrimination is successful when the seller or service provider meets the following conditions in the market, to have the control of the market or having market power; identification of different groups of individuals who have different demands for a good or a service and keeping the buyer in one of the market segment from offering the service or reselling the good to another group in the market in order to prevent or limit arbitrage. The sellers should be able to control the different prices of goods or services in order to succeed in this type of price discrimination. If the firms have no market power, then it means that they have no ability to affect the prices, which are charged on the goods they sell and therefore all the goods are going to be charged at one price. Monopolies are the best examples of firms which are skilled in price discrimination because they are price makers. Monopolies have the ability to charge different prices at different markets without any pro blems. Oligopolies and monopolistic competition firms also can practice price discrimination if they control the prices of goods and services. The other condition necessary for the operation of a monopoly is that the firms must identify the different groups of buyers with each group of buyers in the market assumed to have different elasticities of demand related to the price of the commodity. Different buyers found in the different markets are able to pay different prices for the same type of goods existing in the market.