Chapter 12 Outline - Chapter 12: Pricing Nonuniform...

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Chapter 12: Pricing Nonuniform pricing: charging consumers different prices for the same product or charging a single customer a price that depends on the number of units the customer buys Price discrimination: practice in which a firm charges consumers different prices for the same good Two part tariff is when a customer pays one fee for the right to buy the good and another price for each unit purchased Tie in sale is when a customer may buy one good only if also agreeing to buy another good or service Main Topics: Why and how firms price discriminate: A firm can increase its profit by price discriminating if it has market power, can identify which customers are more price sensitive than others, and can prevent customers who pay low prices from reselling to those who pay high prices Perfect price discrimination: If a monopoly can charge the maximum each customer is willing to pay for each unit of output, the monopoly captures all potential consumer surplus and the efficient level of output is sold Quantity discrimination: Some firms profit by charging different prices for large purchases than for small ones, which is a form of price discrimination Multimarket price discrimination: Firms that cannot perfectly price discriminate may charge a group of consumers with relatively elastic demands a lower price than other groups of consumers Two-part tariffs: By charging consumers a fee for the right to buy any number of units and a price per unit, firms earn higher profits than they do by charging a single price per unit Tie-in sales: By requiring a customer to buy a second good or service along with the first, firms make higher profits than they do by selling the goods or services separately 12.1 Why and How Firms Price Discriminate Two reasons why price discrimination yields higher profits than uniform pricing: o A price-discriminating firm charges a higher price to customers who are willing to pay more than the uniform price, capturing some or all of their consumer surplus-the difference between what a good is worth to a consumer and what the consumer paid-under uniform pricing o A price-discriminating firm sells to some people who were not willing to pay as much as the uniform price Three conditions are necessary for a firm to be able to price discriminate:
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This note was uploaded on 05/03/2009 for the course PAM 200 taught by Professor Unur during the Spring '08 term at Cornell University (Engineering School).

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Chapter 12 Outline - Chapter 12: Pricing Nonuniform...

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