final sg - Chapter 12 After acquiring a substitute product...

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Chapter 12: After acquiring a substitute product, - ● raise price on both products to reduce price competition between them. - ● raise price more on the low-margin (more price elastic) product. - ● reposition the products so that there is less substitutability between them. ● After acquiring a complementary product, reduce price on both products to increase demand for both products. ● If fixed costs are large relative to marginal costs, capacity is fixed, and MR > MC at capacity, then set price to fill available capacity. ● If demand is hard to forecast and the costs of under pricing are smaller than the costs of overpricing, then under price, on average, and vice versa. ● If promotional expenditures make demand more elastic, then reduce price when you promote the product, and vice versa. ● Psychological biases suggests “framing” price changes as gains rather than as losses. Chapter 13: Price discrimination is the practice of charging different people or groups of people different prices based on differences in demand. Typically more people are served under price discrimination than under a uniform price. ● Arbitrage can defeat a price discrimination scheme if enough of those who purchase at low prices resell to high-value consumers. This can force a seller to go back to a uniform price. ● If a seller can identify two groups of consumers with different demand elasticity’s, and can prevent arbitrage between the groups, it can increase profit by charging a higher price to the low- elasticity group. ● A direct price discrimination scheme requires that you be able to identify members of the low- value group, charge them a lower price, and prevent them from reselling their lower-priced goods to the higher-value group. ● It can be illegal for a business to price discriminate when selling goods (not services) to other businesses unless price discounts are cost-justified, or ● Discounts are offered to meet competitors’ prices.

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