Question

Some people argue that monopolists should not be allowed to practice perfect price discrimination. for which of the following reasons might consumers be opposed to perfect price discrimination? choose one or more:

a. perfect price discrimination allows the monopolist to capture the entire consumer surplus.
b. when the monopolist uses this type of price discrimination, there will be deadweight loss.
c. perfect price discrimination means some consumers pay less than other consumers, even though all consumers are buying the same product.
d. the resulting price and quantity will not be efficient.

Answer 1

Consumers may be opposed to perfect price discrimination as it allows monopolists to capture all consumer surplus and may raise concerns about equity and consumer welfare, despite efficiency in output resembling that of competitive markets.

Step-by-step explanation:

Consumers might be opposed to perfect price discrimination for several reasons, including:

• A. Perfect price discrimination allows the monopolist to capture the entire consumer surplus.
• B. When the monopolist uses this type of price discrimination, some might incorrectly believe that there will be deadweight loss, though in the case of perfect price discrimination, this would not occur since the monopolist would produce the same amount as a perfectly competitive industry.
• C. Perfect price discrimination means some consumers pay less than other consumers, even though all consumers are buying the same product. However, under perfect price discrimination, this would not be true; instead each consumer pays exactly their maximum willingness to pay, which can differ among consumers.
• D. The resulting price and quantity will not be efficient. Yet, the pricing and output under perfect price discrimination can actually lead to an efficient allocation of resources similar to that of a perfectly competitive market, albeit without the consumer surplus.

To clarify, perfect price discrimination would allow a monopolist to charge each consumer the maximum price they are willing to pay, thereby transferring all the consumer surplus from the buyer to the seller and increasing producer surplus. This practice is contentious because it could lead to equity concerns and potential negative impacts on consumer welfare, despite the fact that it could lead to a production level similar to that of competitive markets.

It is also important to understand the difference between monopolies and monopolistically competitive firms. A monopoly does not have close substitutes and therefore faces a downward-sloping market demand curve. In comparison, a monopolistically competitive firm has many substitutes and thus faces a more elastic demand curve, meaning the firm will lose some customers to competitors if the price is raised.