4.2.Monopoly - Monopoly II Outline Price discrimination and...

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Monopoly II Outline ± Price discrimination and examples ± Incentive and necessary conditions for price discrimination ± Common types of price discrimination 1 st -degree PD, 3 rd -degree PD ± Welfare effects of price discrimination Price Discrimination Fact: A firm can increase its profit by charging different prices to consumers with different characteristics. Price discrimination: ± charging a consumer different per unit price depending on the amount purchased by the consumer ± charging different consumers or consumer groups different prices Examples: ± Numerous magazines offer student discount subscriptions. ± Many movie theaters offer discounts to senior citizens. ± The AEA’s membership fees vary with a member’s income. ± Products are often packaged with discount coupons that entitle the bearer to purchase the product for a lower price next time. ± Note: Not all price differences are due to price discrimination. For example, some price differences reflect variations in product characteristics or differential costs in supplying the product to various customers. # of coupons distributed was 100 billion in 1981, 200 billion in 1985, 310 billion in 1994, and 336 billion in 2002 (3.8 billion were redeemed for $3.1 billion). Who are most likely to use coupons? 1) Have a low cost of transportation (own cars). 2) Have the space to store items (own homes). 3) Place a low value on time or have flexible time schedules (a nonworking spouse w/o small children). In 2003, 79% of all people in the US use coupons. Age: 71% for 18- to 24-year-olds to 84% for those 65 or older. Income: 82% for people earning under $25,000 to 76% of those earning over $75,000. By using coupons, manufacturers can provide discounts to people who are price sensitive and relatively like to clip and use coupons, without providing discounts to others, typically wealthier people.
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4.2.Monopoly - Monopoly II Outline Price discrimination and...

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