Up to this point, we have considered only the case of a single-price monopolist, one that charges all consumers the same price. As the term suggests, not all monopolists do this. In fact, many if not most monopolists find that they can increase their profits by charging different customers different prices for the same good: they engage in price discrimination.

The most striking example of price discrimination most of us 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 set prices. So any regular airline passenger quickly becomes aware that the 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 happen to purchase the ticket on Tuesday or Wednesday evening, 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 come back on Wednesday, the same round trip might cost $550. Yet the business traveler and the visiting grandparent receive the same product—the same cramped seat, the same awful food (if indeed any food is served).

You might object that airlines are not usually monopolists—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 oligopoly and monopolistic competition, too.