Condition Price Discrimination: 

There are basically three main conditions required for price discrimination to take place

Monopoly power Firms must have some price setting power this means we don't see price discrimination in perfectly competitive markets.

Market separation or Market segmentation - The firm must be able to split the market into different groups of consumers; this is normally done by separating markets by geography, time or income. The must prevent the good or service being resold between consumers. (For example a rail operator must make it impossible for someone paying a "cheap fare" to resell to someone expected to pay a higher fare. This is easier in the provision of services rather than goods. The costs of separating the market and selling to different groups (or market segments) must not be prohibitive.

Elasticity of demand - There must be a different price elasticity of demand for the product in each group of consumers. This allows the firm to charge a higher price to those consumers with a relatively inelastic demand and a lower price to those with a relatively elastic demand. The firm will then be able to extract more consumer surplus which will lead to additional revenue and profit.

Third degree price discrimination is the most frequently found form of price discrimination and involves charging different prices for the same product in different segments of the market. The key is that third degree discrimination is linked directly to consumers willingness and ability to pay for a good or service. It means that the prices charged may bear little or no relation to the cost of production.

The market is usually separated in two ways: by time or by geography. Consumers with an inelastic demand for the product will pay a higher price than those with an elastic demand who will be charged a lesser price.