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What conditions are required for 3rd degree price discrimination?
Third-degree price discrimination occurs if a seller charges different prices to two or more different consumer groups with different demand elasticities. There are three main conditions required for price discrimination to take place.
Market control: to be a successful price discriminator, a seller must be able to control the price. This means that we don't see price discrimination in perfectly competitive markets.
Different groups of consumers: the seller must identify two or more groups that are willing to pay different prices for the same good, i.e. have different price elasticities. This allows the firm to charge a higher price to the consumers with a relatively inelastic demand and a lower price to the ones with a relatively elastic demand. The firm will then be able to extract more consumer surplus which will lead to additional revenue and profit.
No resale: the seller must be able to keep the buyers in one group from reselling the good to another group. Price discrimination is ineffective if trade among groups is possible. In other words, a seller must be able to directly charge each group what they are willing to pay.