nlecture17 - monopoly pricing - slides

nlecture17 - monopoly pricing - slides - 3/24/2009 Topic 7:...

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3/24/2009 1 Topic 7: Monopoly (2) USC Marshal Pricing strategies (1) Pricing strategies • Pricing multiple products • Pricing durable goods Price discrimination USC Marshal • Price discrimination – Perfect price discrimination – Price discrimination based on observables – Price discrimination based on self-selection – Bundling (multiple products) Pricing multiple products • A firm producing a single product (and facing a downward-sloping demand curve) prices at MR = MC • When a firm produces multiple (and related) products, it needs to account for the impact that USC Marshal the price of one product has on the demand for the other
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3/24/2009 2 Pricing multiple products • Basic results: – A monopolist producing two substitutes prices both goods higher than if they were produced by two independent monopolists • Low price/high output for one has a negative externality on the profitability of the other good USC Marshal (cannibalization) – A monopolist producing two complements prices both goods lower than if they were produced by two independent monopolists • Low price/high output for one has a positive externality on the profitability of the other good • Loss leaders – possibility of pricing one below MC Pricing multiple products Examples: – Microsoft should be pricing Windows and Office at prices below those chosen if Windows and Office were produced by two separate firms – Apple should be pricing different models of its USC Marshal iPods higher than if they were produced by separate firms –… Pricing durable goods Durable goods: – Goods that last for several “periods” • Consumers can choose when to purchase – Consumers differ in their valuation of the product • Consumers who value the good more are more
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nlecture17 - monopoly pricing - slides - 3/24/2009 Topic 7:...

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