price discrimination

Setting two or more prices in different markets for the same product. For example, a manufacturer may sell its products at 10p per unit to a large supermarket chain which has considerable buying power, and 12p to other buyers.

It can also be argued that some utilities also price discriminate. In the UK, for example, BT charges higher rates for peak telephone calls than off-peak ones; the electricity companies offer different tariffs to different customers; and rail operators offer reduced fares to customers who travel frequently (season tickets) or travel at off-peak times. Companies price discriminate because they can earn extra profit by charging higher prices to those customers prepared to pay more. Price discrimination is only possible, however, if the company can prevent customers currently buying at high prices from moving into the low-price market. For this reason, companies which price discriminate tend to be monopolists (see monopoly) or oligopolists (see oligopoly.