Ch12-Slides - Chapter Twelve Capturing Surplus Chapter...

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Capturing Surplus Chapter Twelve Chapter Twelve
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Chapter Twelve Overview 1. Introduction: Airline Tickets 2. Price Discrimination First Degree Second Degree Third Degree 3. Tie-in Sales • Requirements Tie-ins • Package Tie-ins (Bundling) 1. Introduction: Airline Tickets 2. Price Discrimination First Degree Second Degree Third Degree 3. Tie-in Sales • Requirements Tie-ins • Package Tie-ins (Bundling) Chapter Twelve
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Ticket Price Number of Passengers Average Advance Purchase $2000 18 12 days $1000-$1999 15 14 days $800-$999 23 32 days $600-$799 49 46 days $400-$599 23 65 days $200-$399 23 35 days $1-$199 34 26 days $0 19 - Chapter Twelve Airline Ticket Prices Flight 815 Oct. 15, 1997 Chicago To LA
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Chapter Twelve Uniform Price Vs. Price Discrimination Definition: A monopolist charges a uniform price if it sets the same price for every unit of output sold. While the monopolist captures profits due to an optimal uniform pricing policy, it does not receive the consumer surplus or dead-weight loss associated with this policy. The monopolist can overcome this by charging more than one price for its product. Definition: A monopolist price discriminates if it charges more than one price for its output.
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MR D MC Quantity Price Uniform Price Monopoly 1st Degree P.D. Monopoly Chapter Twelve Uniform Price Vs. Price Discrimination
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D MC P 1 P U E F G H J K N L CS: E+F 0 PS: G+H+K+L E+F+G+H+J+K+L+N TS: E+F+G+H+K+L E+G+G+H+J+K+L+N DWL: J+N 0 Chapter Twelve MR Quantity Uniform Price Monopoly 1st Degree P.D. Monopoly Uniform Price Vs. Price Discrimination Price
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Chapter Twelve Forms of Price Discrimination Definition: A policy of first degree (or perfect) price discrimination prices each unit sold at the consumer's maximum willingness to pay. This willingness to pay is directly observable by the monopolist. Definition: The consumer's maximum willingness to pay is called the consumer's reservation price . Definition: A policy of first degree (or perfect) price discrimination prices each unit sold at the consumer's maximum willingness to pay. This willingness to pay is directly observable by the monopolist. Definition: The consumer's maximum willingness to pay is called the consumer's reservation price .
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Chapter Twelve “Willingness to Pay” Curve Think of the demand curve as a "willingness to pay" curve. If the monopolist can observe the willingness to pay of each customer (based on, for example, residence, education, "look", etc), then the monopolist can observe demand perfectly and can "perfectly" price discriminate. Think of the demand curve as a "willingness to pay" curve. If the monopolist can observe the willingness to pay of each customer (based on, for example, residence, education, "look", etc), then the monopolist can observe demand perfectly and can "perfectly" price discriminate.
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Chapter Twelve Is it Reasonable?
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This note was uploaded on 07/17/2008 for the course ECON 501.02 taught by Professor Yang during the Winter '08 term at Ohio State.

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Ch12-Slides - Chapter Twelve Capturing Surplus Chapter...

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