Producer surplus and Price Discrimination: 

It is quite evident that price discrimination benefits firms by helping them achieve higher profits. Generally a price discriminating monopoly aims at extracting consumer surplus and making it into extra supernormal profit. It is true that firms may not be driven solely by the aim of maximizing profit. A firm will be able to maximize its revenues if it can extract from each customer the maximum amount that person is willing to pay.

Price discrimination might also be used as a predatory pricing tactic, that is, by setting prices below cost to certain customers in order to harm competition at the supplier's level which would in turn increase a firm's market power. This type of anti-competitive practice is difficult to prove, but would certainly come under the examination of the government authorities such as that of the US and the European Union.

A contrary argument to this would be that price discrimination may be a way of making a market more contestable or competitive in the long run. A classic example of this it the low cost airlines have been enormously successful mainly because of extensive use of price discrimination among its consumers.

The profits made in one market may allow firms to cross-subsidize loss-making activities or services that have important social benefits. For instance, profits made on commuter rail or bus services may allow transport companies to support the loss making rural or night-time services. If the firm is not able to price discriminate or cross subsidize, then these services may have to be with drawn and there could be a fall in employment. In many cases, aggressive price discrimination is seen as unfavorable to the survival of businesses during a recession or sudden market downturn. An increase in total output resulting from selling extra units at a lower price through price discrimination might help a monopoly producer to exploit economies of scale thereby reducing long run average costs.