Econ 4010 Lecture 24

Econ 4010 Lecture 24 - 11 Pricing with Market...

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This lecture explains how firms with market power set prices. - Price discrimination: charging different prices to different consumers for similar goods. - Bundling: selling two or more products as a package. - a personal computer that comes bundled with several software packages - a vacation in which the airfare, rental car, and hotel are bundled and sold at a single package price - a luxury car, in which the air conditioning, power windows, and stereo are standard features - Advertising: deciding how much money to spend on advertising requires information about demand and is related to the firm's pricing decision. Capturing Consumer Surplus (p.382) All the pricing strategies are means of capturing consumer surplus and transferring it to the producer. Price discrimination Price discrimination can take three forms, which we call first-, second-, and third-degree price discrimination. First-Degree Price Discrimination (p.386): charging each customer the price the customer is willing to pay. For example, a doctor may offer a reduced fee to a low-income patient whose willingness to pay or insurance coverage is low but charge higher fees to upper-income or better-insured patients. 1
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This note was uploaded on 03/31/2009 for the course ECON 4010 taught by Professor Cheng during the Spring '09 term at USC.

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Econ 4010 Lecture 24 - 11 Pricing with Market...

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