Dr. Hari Singh Gour University, Sagar (M.

P)
( A Central University )

2nd mid Presentation (1st semester)

On
Pricing Under Monopoly
&
Price Discrimination
(MANAGERIAL ECONOMICS)
(BUM-DSM-122)

SUBMITTED TO :-
( Dr. Babita Yadav)

SUBITTED BY:-
VISHWARANJAN KUMAR (Y24282547)
SHRUTI JAIN ( Y24282546) (TEAM LEADER)
RIM JHIM (Y24282548)
SAKSHI MATHUR (Y24282545)
RITESH LODHI ( Y24282544)
contents
 Pricing under monopoly
 Graphs of pricing monopoly
 Discuss about the graphs
 Monopoly Pricing
 Pricing under monopolistic competition
 Price Discrimination
 Types of Price Discrimination
 Degree of Price Discrimination
 Examples of Degrees of price Discrimination
 Price and output Determination under Discriminating monopoly
 Summary
 Conclusion
 References
PricingPricing
underunder
Monopoly
monopoly

The monopoly market for a commodity is characterized by

the following features :-
1. Single seller :-there is only one seller of the comodity
2. No close substitutes:- there are no close subtitutes for the monopolihst's
products and the seller faces no imminent threat of commpetition.
under such a market the firm and the industry
coincide by the definition .The demand function facing a monopolist is the
same as that facing the industry . Thus a monopolist's demand curve would
be falling .A monopolist like a perfectly competitive firm , Would be
expected to have U – shaped average and marginal cost curves.
Pricing under monopoly
• The inputed charges on the use of owner's factors of production including the
remuneration of the management is included in the cost.
• For convenience of drawing, demand (AR) curve and the corresponding
marginal revenue curves are assumed to be linear ---- straight line.
The equilibrium of a profit maximizing monopolist will be at the
point where MR = MC and the MC cuts the MR curve from below.
In above diagram , A, E is the equilibrium point, OP is the
equilibrium price and OQ is the equilibrium output. The firm
makes profit represented by the area of rectangle PABC .

A Monopolist could make profit both in the short and long-run.

He could also end up with zero profit and could even incur loss in
the short – run. However, he must cover all variable costs and so
his loss cannot exceed his total fixed costs. The monopolist will
break – even if the ATC curve is tangent to the AR curve at the
point of equilibruim. This is illustrated in above diagram.
MONOPOLY PRICING

 OBJECTIVE :- Monopolist's goal is to maximize profits. This occurs

when the monopolist produces at the level of output where
marginal revenue (MR) equals marginal cost (MC).
 Monopoly Power : Unlike in competitive markets , a monopolist
can set its own prices due to lack of competition . This means
the monopolist can charge a price higher than the marginal
cost.
 Pricing decision : The monopolist determines both the price and
the quantity of the goods sold . By, reducing output , the
monopolist can raise the price.
Pricing under monopolistic competition
A market with 'monopolistic competition" as defined by Edward Chamberlin .
a) A large number of buyers and sellers : There are many sellers of a commodity each with
an insignificant share of market so that the activities of each have no effect on others .
Similarly , there are large numbers of buyers in such a market.

b) Differetiated product: Each firm produces basically the same product but endeavours to
distinguish it from its rivals by product differentiation . The difference will often only be
marginal or a matter of branding or packaging, but the manufacturer sets out to
establish his product as unique even through it has in fact very close substitutes.

c) Free entry and exit : Individual buyers and sellers are free to enter or leave the market.
ASSUMPTIONS/FEATURES OF MONOPOLY

 Single seller & large numbers of buyers:- This is the main feature of the
monopoly that there must be single seller of the product and there are
strong barriers to entry for new firms.
 No Close substitutes :- There must be no close substitues of the product in
the market otherwise monopoly will break.
 Barrier to Entry :- There must be barrier to entry for the new firms into the
market. It can be through licence, limit pricing policy, economics of
production etc.
 Price Maker :- A monopolist is the whole seller of the product with no close
substitues. So, It is industry itself. It is price maker as well as price taker also.
 Price Discrimination:- When a monopolist charges different prices for the
same product from different buyers it is case of price discrimination. In
monopoly seller can practised price discrimination as he is single producer
of the product.
Price Discrimination
➢ "Pricing Discrimination" means charging different prices to different customers for the same
product or services when the price differences are not due to cost differences.

➢ Price discrimination arises when a firm sells its (homogeneous) product at different prices at the
same time. Examples of price discrimination are found in service industries ,in socially desirable
but scare goods industries ,and in industries which meet both domestic and international
demands. Medical doctors ,government hospitals , advocates, and professors for private services
and consulting assignments often charge different prices from different customers for the same
service.
➢ Commodities like foodgrains and sugar, under ration are sold at the low controlled price for
amount to all or certain groups of people and the high free market price for extra amounts or to
different group of people.
➢ Railways charge different freight rates for different goods. Airlines and railways provide
concessional rates to students travelling during vacation from their schools to home towns and
back.
TYPES OF PRICE
DISCRIMINATION

1. LOCAL : Charges different prices from different people of different

localities

2. Personal : charges different from different purposes

3. According to use : Charges different prices according to different

use of the product for persons
Degrees of price Discrimination

There are three degrees of price disrimination

1. First – degree Price Discrimination :- It occurs when a firm charges each customer the
maximum price they are willing to pay, capturing the entire consumer surplus. In this case,
he company adjusts prices individually for each buyer.
2. Second – degree Price Discrimination :- Monopolist divides consumers into different groups
and from each group charges which is lowest williness to pay so some consumers get
consumers surplus.
3. Third – degree Price Discrimination :- It occurs when a firm charges different prices to different
group of customers based on identifiable characteristics. The goal is to segment the market
into groups with different price elasticity, so each group pays according to its willingness or
ability to pay.The firm charges higher prices to segments with lower price elasticity and lower
prices to those with higher price elasticity ( more sensitive to price changes).
EXAMPLES OF DEGREES OF PRICE DISCRIMINATION

➢ First degree ( example ) : -

 Consulting services / professional Fees Lawyers or Consultants sometime charge based on a client's
abilitily to pay ,especially in cases where they assess the client's financial situation .
 (E – commerce) :- Some online retailers use data to personalize prices for users , based on browsing
historty, purchasing behaviour.
➢ Second degree (example) : -
 Bulk discounts :- Consumers buying in larger quantities pay a lower per- unit price.
 Freemium Models :- Software companies offer a free version with basic features and charge for
premium features ( e.g. , Spotify free vs. Premium accounts),.
➢ Third degree (example) :-
 Airline Pricing :- Airlines charge different prices based on booking time , destination ,and travel class .
 Geographic Pricing:- International companies charging different prices based on the location of the
consumers. ( e.g. , Cheaper prices in developing countries for the same software product).
Price and output Determination under Discriminating monopoly

Monopolist indulges in price discrimination with the objective of maximizing profits . There are
two condition for equilibrium
1. He must earn same marginal revenue in both the markets.
2. Marginal revenue in both the market should be equal to marginal cost.
In the above Diagram , Equilibrium under discriminating
monopoly has been shown. MR and MC cut at point E
monopolistic will produce OQ level of output. In markket A
equilibrium is at point E1. He will sale OQ a level of output and
charges OP1 price.
In market B equilibrium is at pointy E2. He will sale OQb output
on OP2 price. In Market A demand is less than B market so
monopolist charges high price in market A and low price in B
market.
Case study
 Zomato, one of India's largest food delivery platforms, has faced scrutiny
regarding its pricing strategies and market dominance, particularly during its
rise in the food delivery sector. The company, which was founded in 2008,
rapidly expanded its services across India, leading to significant market share .
Monopoly Characteristics
 Market Leadership: Zomato, alongside Swiggy, controls a substantial portion of the food delivery market in
India, with Zomato holding around 50% of the market share.
 Price Setting: Zomato has considerable influence over delivery charges and restaurant commissions,
allowing it to dictate pricing in the market.
 Barriers to Entry: High barriers for new entrants include substantial investment in technology, logistics, and
brand recognition
 Dynamic Pricing: Zomato employs dynamic pricing models that adjust delivery fees based on
demand, time, and distance, maximizing revenue during peak hours.
Summary

Monopoly is a market in which there is only one

producer of a product which has no close
substitution. There is no difference between firm
and industry under monopoly. The monopolistic
while determining price and output can either fix the
price or let the output are determined in the market
or he may have the second option that he fixes the
output and price will determine the market.
Generally he is a price maker. Price discrimination
is the main feature of monopoly.
Conclusion

 Price discrimination is a widely used pricing strategy that

allows businesses to charge different prices to different
prices to different consumers for the same product or
service based on various factors like willingness to pay,
consumption, quantity, or costumer segmentation . It
can take three main forms :-n first degree ( perfect price
discrimination ), second – degree ( based on quantity or
version ), and third – degree ( based on consumer
groups).
Questions
1.What is price discrimination?
A) Charging the same price to all consumers
B) Charging different prices to different consumers for the same product
C) Offering discounts to all consumers
D) Setting a price based on production costs
(2.) Which of the following is NOT a condition for successful price discrimination?
A) The seller must have market power
B) Consumers must have different price elasticities of demand
C) The product must be easily substitutable
D) The seller must be able to prevent resale
3.)Which type of price discrimination charges different prices based on the quantity purchased?
A) First-degree
B) Second-degree
C) Third-degree
D) Fourth-degree
4.)In a monopolistic market, the demand curve faced by the monopolist is:
A) Perfectly elastic
B) Perfectly inelastic
C) Downward sloping
D) Horizontal
5.)Which of the following is a consequence of monopolistic competition?
A) Allocative efficiency
B) Product differentiation
C) No barriers to entry
D) Both B and C
6) What is the primary source of market power for a monopolist?
A) Government regulation
B) Economies of scale
C) Control over essential resources
D) All of the above
References

• RESOURCES :- BOOK OF (MANAGERIAL ECONOMICS) CONCEPTS AND CASES

VL MOTE, SAMUEL PAUL , G S GUPTA ( INDIAN INSITUTE OF MANAGEMENT)
AHMEDABAD , ( MC GRAW HILL EDUCATION ) PUBLICATION
• CHAPTER NO 4 ( PRICING ) PAGE NO 87 ABND 88 OF THIS BOOK

• (E -PG PATHSALA) MHRD GOVT. OF INDIA ,CONTENT FOR POST GRADUATE COURSES
• PAPER :- MANAGERIAL ECONOMICS
• MODULE 20 : (MONOPOLY) page no 1 to 13
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