Legal Definitions - Price discrimination

Price discrimination occurs when a seller charges different prices to different customers for the exact same product or service, without a justifiable difference in the cost of providing that product or service.

Legally, this practice is generally prohibited when it is done with the specific intention of harming competition. This means it's illegal if the goal is to give an unfair advantage to one buyer over another, or to drive competitors out of the market, thereby reducing overall competition.

• Example 1: Manufacturer Selling to Retailers

  A large electronics manufacturer sells its popular smart televisions to "ElectroGiant," a national big-box retailer, at a wholesale price of $300 per unit. However, the same manufacturer sells the identical smart television model to "Local Tech Shop," a smaller, independent regional retailer, at a wholesale price of $350 per unit, even when both retailers purchase similar quantities and require the same delivery terms. If the manufacturer's intent is to help ElectroGiant offer lower retail prices and gain an unfair advantage over Local Tech Shop, potentially forcing the smaller competitor out of business, this could be considered illegal price discrimination.

• Example 2: Supplier to Competing Businesses

  A company that supplies specialized raw materials offers a significant discount on a critical chemical compound to "ChemCorp," a dominant player in the industrial cleaning product market. At the same time, the supplier charges "EcoClean Solutions," a newer, smaller competitor in the same market, the full list price for the exact same chemical compound, despite similar order volumes. This illustrates price discrimination because two competing businesses are charged different prices for the identical raw material. If the supplier's objective is to make it harder for EcoClean Solutions to compete on production costs with ChemCorp, thereby stifling competition and innovation, this practice could be legally challenged.

• Example 3: Service Provider to Businesses

  A national commercial waste management company provides a substantially lower monthly service fee for waste collection and disposal to "MegaMall," a large shopping center, compared to the fee it charges "Town Center Plaza," a smaller, competing shopping complex, for identical services and waste volumes. This is an instance of price discrimination because the waste management company is charging different rates for the same service to two competing commercial properties. If the intent behind these differing rates is to give MegaMall a cost advantage that allows it to attract more tenants or customers at Town Center Plaza's expense, thereby reducing competition among shopping centers, it could be deemed illegal.