Which condition is necessary for price discrimination to occur?

Price discrimination occurs when a firm charges different prices to different customers for the same product or service, and it requires a degree of monopoly power. This means that the firm must have some control over the price of its product, which is typically found in a market where there are few competitors or where the firm has unique product offerings that differentiate it from others.

With monopoly power, a firm can identify and separate different consumer groups based on their willingness to pay and charge them different prices accordingly. This separation is often based on factors like age, location, time of purchase, or quantity purchased. Without monopoly power, a firm would not have the ability to set different prices for different customers without risking losing sales to competitors offering the same product at a lower price.

Other factors such as competition, elasticity of demand, and availability of substitutes influence market dynamics but are not prerequisites for price discrimination to take place. A firm with monopoly power might operate in a non-competitive environment, allowing it to implement price discrimination effectively.