Monopoly is a market situation in which there is a single seller or producer of a product, there are no close substitutes for the product and there are barriers to the entry of other firm. The monopolist is a price-maker. But he can only set either price or his output. It is an industry in itself.
SOURCES AND TYPES OF MONOPOLY
1) Grant of Patent Right: Monopoly may arise when a company is granted patent right by a government to make use or sell its own invention.
2) Control of Strategic Raw Material: Monopoly can also arise when a firm has exclusive control of strategic raw material.
3) Monopoly may also arise when a company supplies the entire market at a lower unit cost due to increasing economies of scale, mostly in the supply of electricity.
4) There may be government owned and regulated monopolies such as postal services, water corporation and sewer systems of municipal corporation.
5) The sole manufacturer of a product may adopt a limit pricing policy in order to prevent the entry of new firms.
Price discrimination exists when the same products is sold at different prices to different buyers. The product or service is basically the same for example passengers flying a plane with one flying first class by paying higher and another flying economy class by paying lesser, different location of seats in a theatre.
Price discrimination could also be based on timing. E.g. A new product is commonly sold at high prices in which only the rich can afford it while subsequently it is sold at lower prices so that the not so rich can also afford it.
CONDITIONS NECESSARY FOR PRICE DISCRIMINATION
1) The market must be divided into sub-markets with different price elasticity.
2) Separation of the markets must be strict so that no reselling can take place from a low-price market to a high-price market. Price discrimination is easily administered in services that are consumed directly by the buyer such as the services of a doctor, transport, cinema show etc.