In which situation is price discrimination considered illegal?

Price discrimination is considered illegal primarily when it inhibits competition. This situation arises when a seller charges different prices to different customers for the same product or service in a way that harms competition in the market. Such practices can create barriers for competitors, allowing a dominant firm to maintain or enhance its market power by undercutting prices for select customers while charging others higher prices. This can lead to reduced competition, which is detrimental to consumer welfare and the overall health of the market.

Legal price discrimination, on the other hand, may occur in scenarios where prices reflect variations in service, customer loyalty, or market demand that encourage healthy competition. These practices can foster an environment where companies can effectively cater to different customer segments without harming the overall competitive landscape.