In most cases price discrimination is practiced in market short of perfect competition such as monopoly markets. Where monopoly exists, firms are likely to charge higher prices on product than in competitive market and quantity sold is less generating supernormal profits. Further this profit can be increased if the market is segmented with varying prices charged in different segment.
However price discrimination can be practiced in oligopoly markets. In order to maximize profits, firms segment markets or customers depending on how sensitive are in their demand. According to most economists price discrimination prevails in monopolistic or oligopoly markets due to customer heterogeneity (Lars, 2006). In perfect competitive market firms have no market powers and hence price discrimination cannot exist because only one price prevails.
If price for the same product or service vary across market segment and its difference is not based on cost of production then price discrimination is said to exist. Price discrimination can exist in three levels namely First-degree, second-degree and third degree price discrimination.
Price discrimination currently practiced by UK mobile network providers.
Due to its high technological growth rate, mobile industry plays important role in communication industry (Cricelli, et al, 2005). Over the year the mobile industry has been characterized by exponential growth in demand for traffic. In UK mobile network providers are practicing different price discrimination as discussed thereof.
Mobile roaming The UK mobile industry has more than six mobile network providers which include, Vodafone, Orange, O2 etc. according to David (2006) UK mobile operator charge different retail prices in different European Union countries (David, 2006). This form of discrimination can be termed as first degree price discrimination or perfect price discrimination. This is so because in perfect price discrimination, suppliers charge whatever customer segment is willing and able to pay. Although difference in roaming call price is a form of price discrimination, any analyst suggests that it increases operators competitiveness.
In addition, the big issue which is been debated is not the difference in roaming price but the roaming charges are viewed to high beyond many customers reach. As result the commissioner for information society and media is considering forcing the mobile operators to lower roaming charges.
Network to network calls charges this is another area consumers in UK mobile industry have been discriminated accordingly by mobile operators. It is evidenced that each industry player charges differently to calls made to other networks. This means customer bear more cost when calling to some networks over the others.
Mobile phone handset subsidies as a strategy to grow their market share and customer base, mobile operators subsidize customer particularly those buying their hand sets (CIT Information Analysis, 2003). One a customer buys a handset from a given operator he or she is supposed to remain royal to that particular company. Price discrimination come about when customers buy phones from a given company but opt to remain with another operator. What happens is that, a customer who opts to remain with a given operator receives the hand set at reduced price while the one who move to another operator buys at a higher price (not subsidized). In addition mobile handset are subsidized depending on the tariff you are in. pre-paid tariff holder are normally not subsidized when buying phones.
Different retail prices Each network operator offer different tariff which become difficult to decide on which one best fits your needs (MobileGuru, 2009). Do you go for post or pre paid The choice between the two significantly affects call rates and service received. In pre paid tariffs there are no monthly bills and hence one can control his or her monthly bills. Basically one pays for the service before using it. Under this tariff call charges are high and it supports minimum services. Post-paid services accrue more benefits than pre-paid in that calls rates are lower. In addition the cost of handset for post-paid is lower since they are subsidized. Since one mobile operator offers both services then this is a form of price discrimination as it is charging different price to different customers for the same service. This form of discrimination can also be classified as first-degree price discrimination as the operators charge what consumers are wiling to buy.
REASONS FOR TARIFF PACKAGES PROLIFERATION
The issue of tariff proliferation has become an everyday among the leading UK mobile phone service providers. These companies are 3mobile, O2, orange, t mobile, Vodafone, and virgin media but not necessarily in that order. Why do these companies have to increase their tariff packages every now and then The answe6rs to this question are the companies want to increase their market share and base in doing this the companies try to shape their tariffs in away that will satisfy the consumer needs and lastly, the current stiff competition calls for such measures as tariff proliferation.
In this section I will try to expound how the companies try to achieve their objectives through tariff proliferation. By increasing the number of tariffs more often the companies aim at increasing their market share. The argument here is that if a company has ten tariff packages it is possible that it will have captured a small share of the market in every tariff. For example, a company can have 2 per cent of the whole market share in one tariff, 3 percent in another and so on. Then the total number of subscribers in this company will be the sum of all the subscribers in each tariff package. The argument is realistic that if a company can increase the number of tariff packages it can have more subscribers that if it had only a few packages.
The other reason why the proliferation is of late a common thing is because companies want to capture the different components that form the customer base. A market may be divided into the young and old customers or working class and students or business class and the ordinary jobs category. Companies for instance introduce tariffs that are flat rate all through the days be it week days or weekends. This tariff is usually meant for the business class who has to make calls every time regardless of what time of the day or the week is. Companies do have other tariffs that are meant to capture the students customer base. These tariffs are usually pre paid and the calling rates depend with what time of the day is. At night especially the calling rates are usually low than during the day because of a simple reason students are always busy during day time but at night they are usually free and can make calls at this time. Other tariffs do target the ordinary working class most phone companies targeting this group have post paid tariffs that are meant to attract this class. These tariffs ensure that customers can make calls even when it is mid month and the customers have spent all of their previous months salary. It also makes sure that a phone company gets the maximum from a subscriber this is because subscribers sometimes do not mind just how much they spend on calls as long as at end month they will have a salary from which the telephone bills will be deducted. Apart from the aforesaid tariffs, companies have also come up with tariffs that target those people who are almost always making trips abroad. These are the roaming tariffs. Companies collaborate with other companies or their subsidiaries in other countries to ensure that a subscriber does not have to migrate to other networks when heshe flies abroad. Apart from the ones mentioned here there are other tariffs that are meant to capture different classes but in, different ways.
Another reason that makes companies proliferate their tariffs is because they want to retain their customer base. A company cannot afford to lose its already hard won market share. To achieve this companies have to understand the customers tastes and preferences which do change with time. Sometimes it calls for a tariff package modification or a change if the subscribers tastes and needs have to be fulfilled sufficiently. There are times that companies have d one this just to maintain a few customers but always companies have always weighed the costs and benefits before taking such an action.
There are also times that companies have introduced new tariffs with an aim of spreading the intervals at which the subscribers are making calls. Calls are usually congested at particular times of the day especially at 9 pm. To reduce this congestion
Some companies have introduced tariffs that do decongest calls from this time to some other time. For example there are times when call networks are idle. Companies in such a case have com-e up with tariffs that ensure that subscribers make calls at this time.