LA Business Daily
What is the maximum consumer surplus in a monopolistic industry under perfect price discrimination?
Consider the case of perfect price discrimination in an industry with pure monopoly, where every consumer is charged the maximum price s/he is willing to pay. What is the maximum possible value of consumer surplus? I am not really getting the concept of consumer surplus, would anyone please explain that in relevance to the answer to this question?
Public Comments
- Consumer surplus is the difference between the price a consumer is willing (and able) to pay for a good or service and the price which s/he actually paid, i.e. the market price. Consumer surplus depends on the elasticity of demand of the product concerned. For instance if a football fan is ready to pay $3 for a ticket to watch a soccer match, but the ticket was sold to him/her for $2, then the consumer surplus is $3 - $2 = $1. In the case of a perfect price discrimination where every consumer is charged the maximum price s/he is willing to pay, consumer surplus is zero because everyone is charged the maximum price s/he is willing to pay.
