Lectures%2022%2B23%20Price%20Discrimination

# Lectures%2022%2B23%20Price%20Discrimination - If we can...

This preview shows pages 1–4. Sign up to view the full content.

1 If we can distinguish every single consumer and know his demand: ± Perfect price discrimination (“First Degree Price Discrimination”) ± Efficient ± But : Are we satisfied with a solution where all the gains from trade go to one party? A = Consumer Surplus ± Fixed fee A that extracts consumer surplus Non-linear Prices in the Demand - Supply Diagram MC q p p=c q* ± p=c efficient production Pricing scheme: Demand Aggregation Model 1 p q Downward sloping individual demand Reservation price for one good unit demanded Aggregation Model 2 Model 2 q 1 r p p q 1 r 1 p q = 1 2 p + q 1 r 2

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 Elasticity ± Measure of relative changes instead of absolute changes: ± The Elasticity measures the percentage change in demand (supply) induced by a percentage change in price. p p q q Δ Δ = ε > 2 1 Demand D 1 is more elastic than D 2 ± q p D(p) Elasticity ± Linear Demand D(p) = a - b · p bp a bp = b a 2 2 a | ε | > 1 | ε | < 1 0 | ε | = 0 a b a | ε | = | ε | = 1 ± The monopolist’s maximization problem: Optimum: Marginal Revenue = Marginal Cost ± How is this different from perfect competition? Firm takes into account the impact of a marginal sale on the revenue from inframarginal units Monopoly C(q) R(q) q max (q) C (q) R = Monopoly: q q p p (q) R + = p (q) R = Perfect Competition:
3 A Linear Example C, Π , R q C(q) R(q) q ^ q Demand: bq - a P(q) = Cost: 2 q 2 c C(q) = 2 bq - aq R(q) : Revenue = ^ ^ q R MAX 1 maximized is Revenue : q ˆ ˆ At = ±

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 04/02/2008 for the course ECON 401 taught by Professor Kuhn during the Fall '08 term at University of Michigan.

### Page1 / 8

Lectures%2022%2B23%20Price%20Discrimination - If we can...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online