Which is a necessary condition for a monopolist to effectively use price discrimination?

Price discrimination occurs when a monopolist charges different prices to different consumers for the same good or service. To effectively implement this strategy, a key requirement is the ability to segment markets. This means that the monopolist must be able to identify and separate different consumer groups based on their willingness to pay or other characteristics.

By successfully segmenting the market, the monopolist can tailor prices to maximize revenue from each group, ensuring that each segment is charged according to its specific demand elasticity. For instance, the monopolist can charge higher prices to those who are less sensitive to price changes (inelastic demand) and lower prices to those who are more sensitive to price changes (elastic demand).

Without this ability to segment markets, a monopolist cannot implement price discrimination effectively, as they would have to charge a single price that does not account for the varying price sensitivities among different consumer groups. This requirement is fundamental to the functioning of price discrimination and is a critical aspect of a monopolist's pricing strategy.

In contrast, elastic demand across consumer segments, perfect competition, and stand-alone production capacity do not directly facilitate the ability to segment markets, which is essential for effective price discrimination.