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Price-Discriminating Monopolies

Definition

Price-discriminating monopolies are firms that charge different prices for their products based on individual customers' willingness to pay. They have the ability and market power to segment consumers into different groups and charge higher prices to those who are willing and able to pay more.

Analogy

Imagine going shopping with your friends at an amusement park where each ride has different prices depending on how much you want to go on them. The park knows some rides are more popular than others, so they charge higher prices for those rides while offering discounts for less popular ones.

Related terms

Market Power: The ability of a firm (usually a monopoly) to influence price or quantity in the market by controlling supply or demand. It is often associated with the absence of competition.

Price Discrimination: The practice of charging different prices to different customers for the same product or service based on their willingness to pay. Airlines offering different ticket prices for economy, business, and first class is an example of price discrimination.

Elasticity of Demand: A measure of how responsive consumers are to changes in price. If demand is elastic, a small change in price will result in a significant change in quantity demanded. If demand is inelastic, quantity demanded remains relatively unchanged despite price changes.