Discriminating Monopoly

Monopolies have the power. All of it.

Since monopolies don’t face any market competition by definition, they are price setters instead of price takers. For instance, if there was only one company making smartphones and nobody else could, they could make the price of smartphones anything they wanted. Scary.

A discriminating monopoly is a monopoly that tries to squeeze the maximum price people are willing to pay, charging different prices for different groups. The classic example of a discriminating monopoly IRL is airlines. You know how tickets are initially priced low, and then if you wait too long, they’re super-expensive? Yep, that’s discriminating right there, on that specific good.

The price is low in the beginning to get buyers to swoop in. Once enough bargain hunters have gotten their seats, the airline will raise the price for those last-minute people. If there are still some empty seats, they’ll lower the price again to get bargain hunters who are willing to hop on a flight that they maybe weren’t expecting to.

That’s a time-example of price discrimination, but there are also geographic examples, like stores in wealthy neighborhoods that charge more for the same stuff sold in the poorer neighborhoods. In order for monopolies to discriminate on price, they have to find some way to cater to the different groups, whether using time, geography, or...something from the Twilight Zone…