Summary
In this second LP on monopolies, we learn about a few more types of monopolies, quite particular ones. We learn about discriminating monopolies, how the implement different prices in order to extract all consumer surplus. We also learn about natural monopolies, which are tricky since they are actually good for society.Discriminating monopoly:
- Price discrimination
- First degree price discrimination
- Second degree price discrimination
- Third degree price discrimination
- Two-part tariff
Natural monopolies:
Third-degree price discrimination, also referred to as market segmentation of price discrimination, consists of varying prices depending on what segment of the market the consumer belongs to. Each consumer will be charged with a different price, but it will remain constant whatever the amount bought. This degree of discrimination is the most commonly used by firms and it includes examples such as students or third age discounts.
As shown in the figure above, the firm will disaggregate the global demand, and it will charge each market segment the price that will maximise its profit. Higher prices will be charged to those segments where the elasticity of demand is lower. In this case, we have
Finally, we’ll see one last type of price discrimination before learning about natural monopolies: the two-part tariff.
