circumstances under which international firms decide to produce the inputs rather than products them.

A seller of a product in a competitive industry (i.e., one characterized by many competing sellers of a good or service) generally can only charge a single price (i.e., the price that its competitors are charging) to all of its customers. However, monopolists not only have the ability to charge a higher price than would competitive firms supplying the same product, but they also have the ability to charge significantly different prices to different customers for the same product.
Monopolists are invariably well aware both of this ability and of the fact that by taking advantage of it they can often gain much greater profits than they could by just charging a single price to all customers. That is, a monopolist can maximize its profits by charging a separate profit-maximizing price for each type or group of customers (e.g., different income levels, professions, education levels, geographic locations or ethnicities) rather than by charging one profit maximizing price to all customers taken as a whole, because of the differences that generally exist among the different types or groups of customers with respect to their ability and willingness4 to pay. This behavior is termed price discrimination.
The ability to engage successfully in price discrimination depends on the degree of separation of markets, that is, how difficult or costly it is for buyers to transfer the product among themselves. For example, small, easily transportable items (e.g., those that come in a small box or that can be delivered via the Internet) are generally easier to transfer among buyers than are large, heavy products (e.g., hydroelectric generators and steel beams), customized products (e.g., consulting services or dental work) or products that make extensive use of a local language (e.g., books and some computer software). If a product is easy for buyers to resell, then businesses or individuals who can buy it at lower prices would have a profit incentive to resell it to others who would be charged a higher price by the monopolist. Monopolists generally are strongly opposed to such transferring of their products among buyers, and they tend to devote considerable effort to attempting to stop or minimize it.


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