 So, we will continue our discussion on price discrimination and few more types of product pricing in this session. So, if you remember in the last class, we discussed the concept of price discrimination and this is a situation where the firm has the market power to charge different prices to different consumer group in the different market. In that context, we discussed three types of price discrimination. One is the first degree price discrimination, where the discrimination is on the basis of the price. The basis in case of first degree price discrimination is to capture the consumer surplus from the consumer and in that case, generally there is no consumer surplus and there is no dead weight loss. The entire surplus goes to the producer's account and this is known as the extreme form of the price discrimination. However, the difficulty in this case, in the case of first degree price discrimination is very difficult to assess what is the willingness to pay for a particular product for each consumer group because that will be only the, that will only help to set the price in order to extract the consumer surplus. Then we discuss about the second degree price discrimination. Second degree price discrimination talks about the discrimination on the basis of the quantity. So, here the basis is not the charging a different price at the different group rather charging different price on the basis of the different quantity. And typically all the meter services like electricity, water or maybe the telephone, this comes under this second degree price discrimination. Then we discuss about the third degree price discrimination and third degree price discrimination is one. Here the total market is segregated on the basis of the elasticity of demand and the segmentation can be on the basis of the geographical, on the basis of the consumer or on the basis of the nature of the goods. And here the market, once it is segmented between two kind of market that is elastic and inelastic market. On the basis of the market, generally the price will be charged whether it is a high price or whether it will be low price and what will be good or what will be more preferred for the monopolist in order to maximize the profit. So, in the last class we discussed that how graphically how two prices will be charged in case of a third degree price discrimination. Just to repress again we will look at the graphical representation of the third degree price discrimination. And then we will take a numerical to understand that how this price differs when the price discrimination is practiced and when price discrimination is not practiced among two different kind of firm or two different kind of the market. So, to start with we will have the graphical representation first and then we will take a numerical to understand this price discrimination. So, if you remember this also we discussed in case of our last session when we discussed about the third degree price discrimination the entire market is divided into two sub market on the basis of the elasticity of demand. So, one this is where the market we can say inelastic that is from the nature of the demand and the other it is more elastic this is again on the basis of the demand. Taken together we have the total market demand and total. So, this is total market demand this is marginal revenue of the total market. Here it is a elastic market. So, let us call it market B let us call it market A. We will take the MC function where MC will be always the marginal cost because marginal cost of producing is remain same only the total output is getting divided between two market because this Q t is only equal to Q 1 plus Q t Q 2, but in general the Q 2 gets producing by one firm, but when it is only getting sold that time only it is getting divided into two markets that is why we get the common marginal cost for both the firms and on that basis we identify the marginal cost under the basis by the maximization rule marginal cost and marginal revenue rule we have identified the quantity. Now, how this total quantity will get distributed between both the market. So, corresponding to this we will take also the extension of marginal cost curve in case of in case of market A and market B. So, corresponding to this we will get the price and quantity. So, this is the price and this is the quantity in case of first market and this is the price and this is the quantity in case of the second market. So, if you look at the P 1 is always greater than P 2. So, here what is the profit maximization rules for both the firms the both the firms the profit maximization rule is to maximize the profit, but when it comes to how to maximize the profit generally in case of elastic market small change in the price generally leads a greater change in the quantity demanded that is why the price cannot be increase here rather here it will be a lower price will be more profitable, but in case of in elastic market since quantity is not going to change even if there is a change in the price generally the firm charges a higher price and on that basis the quantity get distributed between both the firms that is Q 1 and Q 2 and if you look at here the basis of price discrimination is elasticity of demand and the price is higher price is charge in case of the in elastic market and lower price is charge in case of the elastic market. So, the basis is again here the elasticity of demand and the producer maximize the profit by charging a higher price in case of the in elastic market and lower price in case of the elastic market. Then we will take a numerical to understand this third degree price discrimination how the price discrimination is when the price discrimination is practice how it leads to a higher price as compared to a price which is lower than the when price discrimination is not being charged. So, we will take suppose there are we can say there are two markets A and B. So, we will take two demand function Q A is equal to 60 minus 2 P B or we can say this or there are two markets 1 is Q 1 is B or second one is may be DC. So, two kind of market Q B is equal to 60 minus 2 P B and for this the demand function is 3 Q DC is equal to 56 minus P DC. The total cost function is same because it is only the market Q B is equal to 60 minus 2 P B. So, the market is divided for selling the selling the product, but when it comes to produce the product it is the by produced by the one firm and that is why the total cost is same. Now, we need to find out what would be the what would be the price of tickets with discrimination what would be the price if the firm or if the monopolist decides to charge the same price there or may be we can when there is no discrimination. Now, let us find out the price without discrimination and price with discrimination. So, in the first case we have a demand function that is Q B is equal to 60 minus 2 P B. So, we have to find out the total revenue for B and in this case what will be the total revenue for B first we will solve this in term of the P B. So, what will be the P B? So, from Q B how to find out this P B? 2 P B is equal to 60 minus 2 P B is equal to 60 minus Q B. So, P B is equal to this is 30 minus half Q B. So, total revenue for B is equal to 30 minus half Q B multiplied by Q B which is equal to 30 Q B minus half Q B square. Now, marginal revenue for B will be this is our total revenue marginal revenue for B will be total revenue B with respect to D Q B. So, this we get as 30 minus Q B. So, marginal revenue for B is equal to 30 minus Q B. Now, what is our total cost? We will find what is our total cost? So, total cost is equal to 40 plus 20 Q and marginal cost is D T C with respect to Q. So, that comes to 20. So, we have marginal revenue of B that is 30 minus Q B and MC is equal to 20. To find out the price we need to equalize the marginal revenue with marginal cost. So, this is 30 minus Q B is equal to 30 minus Q B is equal to 20 and Q B is equal to 10. So, if Q B is equal to 10 what is P B? P B is equal to 30 minus half Q B. So, that comes to 30 minus 5. So, this comes to 25. So, when the price is decided individually. So, in this case we get a price which is equal to 25. Now, what we will do? We will find out when there is a discrimination and what is the price in that particular case. So, for that we will take the second demand function that is 3 Q D C is equal to 56 minus P D C and to find out the total revenue of D C is equal to before this we need to find out the P D C. So, P D C will be 56 minus 3 Q D C. So, that comes to TR DC is equal to 56 minus 3 Q D C multiplied by Q D C. So, that comes to TR DC is equal to 56 minus 3 Q D C multiplied by Q DC. So, that comes to 56 minus 3 Q D C square and marginal revenue of DC will be that is D TR DC is equal to D C with respect to D Q DC. So, that comes to 56 minus 6 Q DC. Now, we need to again get the price when the price discrimination is being practiced. So, in this case we get marginal cost is equal to marginal revenue that is MRDC. So, 56 minus 3 Q DC is equal to 56 minus 6 Q DC that is equal to 20 Q DC is equal to Q DC is equal to 6 and P DC is equal to 56 minus 3 Q DC. So, that comes to 56 minus 3 into 6 that comes to 56 minus 18 which come to 38. So, with price discrimination in the both the market if there is a price discrimination that market P B is equal to 25 and P DC is equal to 38. Now, we will need to see what is the case when there is no discrimination. Why we call it is price discrimination? Because in both the cases the market price is decided on the basis of the specific marginal revenue curve and specific marginal revenue curve dependent on the what is the elasticity of demand. So, that is why when we are finding out the price individually of both the markets we know that the prices are different in both the markets and that is why the price discrimination is being followed. Now, we will take together for both the market and we will find out the price and that price where there is no discrimination. Because in the first case also when we found the price for the specific market on the price on the basis of the specific market on the specific market that is the price being followed in that particular market. And in this case also when you found the price on the basis of specific market this is the price being followed in that particular market. Now, we will say if there is no discrimination what is the price they should be following. So, taking the previous case when this is the discrimination was being followed that is the price by both the market. Now, we will say that there will be no discrimination what will be the price if there is no discrimination then we will get a combined demand curve. So, basically no discrimination means price should be equal to the price of B that is should be equal to the price of DC. So, combining this demand function will get a combined demand function taking both the market. So, here it is q is equal to 60 minus 2 p plus 56 minus 3 minus p by 3. So, p is equal to 236 by 7 minus 3 by 7 q and this is the p for profit maximization we require for profit maximization we require marginal revenue and marginal cost marginal revenue and marginal cost. So, next we will find out the marginal revenue. So, now, we have p which is equal to 236 by 7 minus 6 by 7 q and 6 by 7 q this is the sorry this is p is equal to 6 by 7 q. So, 236 by 7 minus 3 by 7 q. Now, what will be the p q? p q is which is equal to the total revenue. So, this is 236 by 7 q minus 3 by 7 q square to find the marginal revenue we will take the derivative with respect to q. So, this comes to 236 by 7 minus 6 by 7 q. So, this is our marginal revenue and we know marginal cost is equal to 20. Now, we will take the marginal equality between the marginal revenue and the marginal cost. So, marginal revenue is equal to 236 by 7 minus 6 by 7 q which is equal to 20 as we know that marginal cost is equal to 20. So, solving this we will get q is equal to 16 and putting the value of q here in p equation we get p is equal to 26.9. So, this is the price which is going to followed by the price of b and this is also price of the other firm other market. It means when there is no discrimination they are charging a price that is 26.9 and when there is a discrimination they are charging price 25 and they are charging the price that is 38. So, if there is a discrimination this is the price that is going to be followed by both the firm that is b and dc, but if there is if there is discrimination by specific firm b charges 25 for the price and dc charges 38 for the price. So, the point here what to remember here is that the always the monopolies they check for the price level where they can maximize the profit and on that basis they fix up the price in the both the market whether it is elastic or in elastic in generally in case of in elastic they charges a high price and in case of elastic they charges a low price. Then we will discuss about this international price discrimination and dumping. So, till now we have understood the price discrimination from the point of view of the point of view from the concept and from the theory. Now, when this price discrimination is followed in the international market we will see what is the outcome and how that can be taken. So, international price discrimination generally if you look at prices are different in different international market for the same product and why it is different because it depends on the paying capacity and the price elasticity of demand. So, it is different in the different international market for the same product and why it is different because different economy has a different paying capacity and also they have a different price elasticity of demand. Some in some market is more sensitive to the price some market is less sensitive to the price and this is when it is done deliberately when the prices are different in the different market and when it is done deliberately generally we call it say the strategy is generally known as dumping and dumping is the strategy adopted by a country where product is exported in bulk to a foreign country at a price which is either below the domestic market price or below the marginal cost of production. So, what they do in case of dumping in case of dumping generally they adopt a strategy where the country export the product in a bulk and the price what they follow that is less than the domestic price and below the domestic price and below the marginal cost of production. Now, what is this dumping if you look at this kind of predatory pricing or a kind of price low price what they follow which is aimed at gaining monopoly in a foreign country or at the at disposing the excess inventory. So, what is why generally this this is done why the export is at the bulk at a less than the domestic price because it is a kind of predatory pricing and what is the aim of this pricing generally they will gain monopoly in the foreign country because they are buying it in the they are sending it in the bulk and also they are charging a lower price to this. So, either they try to gain a monopoly market they will try to get a monopoly status in the international market or to dispose the excess inventory in order to avoid reduction in home price and thereby helping reduction in the producers income also. So, either they try to become the monopolist or they try to dispose the excess inventory suppose it has been produced much in the home country and in order to avoid that reduction in the home price thereby helping the reduction also producer income. So, if they have already produced they have they have that in the inventory they try to dispose the excess inventory. So, that they can avoid the reduction in the home price rather than charging a lower price at home and thereby help the reduction in the production income. So, what is the gain from the producer point of view they are giving it they are either they will get a monopoly status or they try to dispose whatever their excess inventory and in that way it helps to increase the producers income. And generally dumping is also known as the fair value product the pricing which is below the fair value product of the fair value of the product because they are they are exporting in the bulk in the typical economy where the price is lower than even whatever is being charged as the domestic price. Ideally when we export something we export at a higher price because it also involve apart from the price it also involve the transport cost of putting from one economy to the another economy. But in case of international price discrimination in case of dumping it it does not happen in that way generally its bulk is given in the lower price and the motivation is to either become a monopolist or gaining a monopoly in the foreign country or or reduce the excess inventory in the home country. But whenever this dumping is not legal whenever this dumping is being done it is generally protected by the economy that none of the economy or none of the foreign economy should come and dump it in the home economy because when they are charging something less than the domestic price there is always a question about what is the quality of the product. So, world trade organization they has a provision of imposing special duties to counter what such a policy if the affected country can prove that dumping has taken place in hermit industry. So, WTO world trade organization they have certain rule for this or they have certain law for this and they have a provision of imposing special duties if such kind of dumping is happen and in that case the affected country they have to prove that the dumping has taken place and it is harming its industry. Generally, if you look at in the Indian market China always try to dump the low value product in the Indian market in that way they try to gain the monopoly. Now, also if you look at the toys the plastic product it is over flooded as the it comes from the China economy it is the entire the plastic or the toy industry is over flooded with the Chinese product. So, Indian several instances they have investigated against the import of the consumer goods specially from China and there are also instances that there is anti-dumping duties have been imposed. So, anti-dumping if so dumping when it comes to dumping it is always a if it is being proved then it is not a healthy way of the pricing or healthy way of doing the trade and that is why dumping is not legal and if the dumping is found generally there is a special duties provision from World Trade Organization. Then we will take a case of Indian Railway and we will try to analyze because if you look at try to analyze whether they have the price discrimination or not because if you look at Indian economy is such that in this case we always consider that the largest monopoly this is the regulated monopoly and since this is the regulated monopoly they have freedom about their prices and they charges the different fair under various heads for this different kind of services. Now, on the basis of this consumer category we will see on what basis generally they discriminate. On the basis of the consumer category if you look at there is special fair for doctors, senior citizens, patients, students unemployed youth and even for the kid. So, they give 25 percent concession of 10 category of passenger, 50 percent concession for 27 categories of passenger, 75 concession for 26 category and 100 percent concession for 2 category. So, here what is the discrimination? The discrimination is among the different kind of consumer and on that basis they generally gets the concession like if it is unemployed youth or students they get 100 percent concession. If they get only 25 percent concession may be this is for a specific category of the consumer. Similarly, if it is senior citizen they get 50 percent concession. So, on the basis of the different kind of consumers generally they offer the concession and we can say that here the discrimination is on the basis of the different consumer group not on the basis of the any other factor over here. Then on the basis of the class of travel, so if you look at there are 7 classes starting from on reserve class to the slipper class to the third AC to the second AC to the first AC. There are total 7 classes in the 7 classes like with sitting AC sitting there are 7 category of services effort to the consumer and here for each category it charges a different prices or different fare. Of course the comfort associated with the different classes are different, but still as a whole if you look at it is one product and for that product because anyway it is you are using it is a mode of travel and in case even if it is a mode of travel it is one class till the different prices are charging on the basis of the different classes being offered in the train journey. Then on the basis of the category of train, so discrimination here is what is the big difference if someone is travelling by Rajdan is someone is travelling by passenger someone is travelling by mail and express. Here the discrimination is on the basis of the time cover in the travel Rajdan it takes the lowest time or may be the passenger takes the highest time. So, in this case since the consumer is able to reach in a less time he is being charged for that or if the consumer is travelling through passenger train and there is no there is he is taking his may be higher time to reach the destination he is getting a concession for this. So, in this case if if he is the train service is offering a seat in the Rajdhani he is charging for it, but if he is in the passenger I think he is just charging the normal fare what is applicable for a railways mode of travel. So, here the discrimination is on the basis of the time taken by the train to cover the entire distance or cover the travel distance. Then then also the entire if you look at this entire thing can get what is the services associated with this if you look at its not classes may be it is also services associated with it. If it is food then may be a special fare for it if it is bedding because if you are travelling in AC if they are giving bedding so that cost is included in the ticket. So, different classes, different consumer group and also different category of train on the basis of that Indian Railways generally practice the price discrimination.