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price discriminationthe ability of a supplier to sell the same good or service in a number of separate MARKETS at different PRICES. Markets can be separated in various ways such as by different consumer requirements (for example bulk and low volume gas supplies to industrial and household consumers, respectively); by the nature of the product itself (for example original and replacement components for washing machines) and by geographical locations (for example domestic and foreign markets). In order for price discrimination to be viable, markets must differ in their demand profiles (that is, exhibit different demand elasticities, so that higher prices can be charged where demand is inelastic and lower prices charged when demand is elastic), and the supplier must be able to ‘seal off each market so that customers in lower-priced markets cannot resell to those in higher-priced markets.
Price discrimination can help a supplier to increase his sales and profits, improve market share and contribute to the full capacity utilization of manufacturing plant.
However, price discrimination may be exercised by a DOMINANT FIRM in a predatory manner aimed at removing troublesome competition or as a means of exploiting buyers. See OFFICE OF FAIR TRADING, ELASTICITY OF DEMAND, PRICE-SQUEEZE, DEMAND-BASED PRICING.