A monopolist who charges everyone the same price is known as a single-price monopolist. As the term suggests, not all monopolists do this. In fact, many monopolists find that they can increase their profit by selling the same good to different customers for different prices: they practice price discrimination.

An example of price discrimination that travelers encounter regularly involves airline tickets. Although there are a number of airlines, most routes in the United States are serviced by only one or two carriers, which, as a result, have market power and can influence prices. So any regular airline passenger quickly becomes aware that the simple question “How much will it cost me to fly there?” rarely has a simple answer. If you are willing to buy a nonrefundable ticket a month in advance and stay over a Saturday night, the round trip may cost only $150—or less if you are a senior citizen or a student. But if you have to go on a business trip tomorrow, which happens to be Tuesday, and want to come back on Wednesday, the same round trip might cost $550. Yet the business traveler and the visiting grandparent receive the same product.

You might object that airlines are not usually monopolies—that in most flight markets the airline industry is an oligopoly. In fact, price discrimination takes place under oligopoly and monopolistic competition as well as monopoly. But it doesn’t happen under perfect competition. And once we’ve seen why monopolists sometimes price-discriminate, we’ll be in a good position to understand why it happens in other cases, too.