>> We know that monopolies
raise prices

and reduce output relative

to the perfectly
competitive situation.

But there is a way
for monopolies

to earn even more money while
actually moving the market

closer to the optimal output.

The idea is that
monopolies are able

to charge different
people different prices.

First, let's talk about why
monopolies are the only kind

of companies that can do this.

Suppose you had two burger
places right next to each other.

What if Barb's Burgers
decided to charge everyone $8

for a burger while Bob's
Burgers charged $6 to students

and seniors and $10
to everybody else?

Well everyone who is not a
senior or a student would switch

from Bob's to Barb's and
Bob would lose money.

So this really only works
when there is one producer

and the product can't
be the kind

of thing that can be resold.

Otherwise you'd have seniors
loading up on cheap goods

and reselling them
to everybody else.

So this only works for
experiences or services

like movies or airline
tickets or ski tickets.

But why would a monopoly want

to charge different people
different prices anyway?

Suppose Slush Mountain is the
only ski resort in the region.

It knows that there are
two kinds of consumers;

high income professional
families whose kids will pester

them to go skiing,
and teenagers.

Suppose Slush Mountain
charges everyone a low price.

Both the teenagers and
the families will ski

but it could have
gotten much more money

out of the high income families.

On the other hand if it
charges a high price,

it will make money
off of the families

but now the teenagers
can't afford to ski,

reducing the number
of consumers.

Slush Mountain can make the most
money by charging a high price

to the families who have the
ability and the willingness

to pay it, and then charging
a lower price to the teenagers

with a student discount.

They get high revenue
off of the families

and high volume from
the teenagers.

Now here's the strange part;
the closer the monopolist comes

to charging each individual
person the highest price they'd

be willing to pay,
the closer we get

to the efficient
output quantity.

Remember without
price discrimination,

monopolies charge a higher price
and produce a smaller quantity

than the competitive
market would

with the same demand
and production costs.

Price discrimination allows the
monopoly to expand its number

of consumers without
losing money on the people

who are willing to pay a lot.

Society is better off
overall because we're back

to producing all the
goods where the benefit

to consumers exceeds
the cost to producers.

But the monopolist captures
all of those societal benefits

by charging each set of
customers a price equal

to their entire benefit.