The Moral of Price Discrimination

Abstract

IT is now possible to inquire how far price discrimination is harmful or advantageous to the customers of the monopolist and to society as a whole. First of all, it is clear, since average revenue is greater under price discrimination than under simple monopoly, that there may be cases in which no output would be produced at all if price discrimination were not possible.1 If the average cost curve of a certain product lay above the demand curve for it throughout its length no profit could be made by producing it under any one-price system. But if the average cost curve, though above the demand curve, lay at some point below the average revenue curve under price discrimination, a profit could be made and some output would be produced provided that discrimination was possible.2 It may happen, for instance, that a railway would not be built, or a country doctor would not set up in practice, if discrimination were forbidden. It is clearly desirable that price discrimination should be permitted in such cases, for the average revenue of the monopolist cannot be greater than average utility to the consumers.3 average revenue is greater than average cost, average utility will also be greater, and the investment will lead to a gain to society.