Get the answer of: Is Price Discrimination Socially Desirable?
Price discrimination is beneficial to the poor buyers who can get the goods and services at relatively low prices. But it is not beneficial to the rich buyers who are compelled to pay higher prices for the same thing and so are deprived of the consumer’s surplus which they might have enjoyed in the absence of such discrimination. It may be also harmful to the society as a whole as it may cause a diversion of society’s scare resources from the production of desirable goods to that of undesirable ones.
R. G. Lipsey has discovered the two positive effects of price discrimination:
(a) For any given level of output the best system of discriminatory prices will provide higher total revenue to the firm than the best single price.
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(b) Output under monopolistic discrimination will generally be larger than under a pure monopoly, where the same price prevails in all parts of the market.
Modern welfare economics examines the implications of charging different persons drastically different prices for the same ‘product’ with regard to marginal costs of the seller. Surgeons’ fees are the chronic example of this kind of pricing. What is really important is whether prices produce disparities in ‘real value’ among buyers. Indeed, “a good case can be made for the social desirability of many forms of price discrimination (i.e., by cost disparity criteria)”.
As Joel Dean points out:
“such discrimination is usually practised by governments and is frequently motivated by welfare considerations. Notable examples are subsidised low-cost housing, agricultural price supports, unemployment and insurance benefit and even the progressive income tax. These are all forms of price discrimination that work towards equalised real income”.