PAM_2000_Spring_2009_Lecture_21

PAM_2000_Spring_2009_Lecture_21 - PAM 2000: Lecture 21 n PS...

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Unformatted text preview: PAM 2000: Lecture 21 n PS 6 due next Tuesday n MBN Ch. 16 “Big Oil, Big Profits” n Agenda: Pricing with some market power q Price discrimination n Definition n Conditions for q First degree price discrimination q Second degree P.D. or quantity discounts q 3rd degree P.D. or multi-market P.D. q Two-part tariffs MBN Ch. 16: “Big Oil, Big Profits” n Large effects of rising oil prices on behavior n Short-run demand side: q Carpool, walking, biking, public transport n Long-run demand side: q Moving closer to school/work, buy more effic. car, use more alternative fuels n Short-run supply side q Open old wells, reduce inventories MBN Ch. 16: “Big Oil, Big Profits” n Long-run supply side q New exploration, drill new wells, build more refineries n Oil prices matter for behavior n Common media view: Oil companies (or sometimes “speculators”) were manipulating oil prices MBN Ch. 16: “Big Oil, Big Profits” n Privately owned oil companies have small market shares: q ExxonMobil, Shell, and BP together are smaller than national oil companies of Mexico, Venezuela, or China n From Now On ! When prices change, look to supply and demand factors first (e.g. growth of large developing economies such as China and India; prices higher in summer, etc.) MBN Ch. 16: “Big Oil, Big Profits” n Then look to macroeconomic policies. Role of Fed? q Asides: long-run real (inflation adjusted) price of crude is downward q Proven reserves of crude larger than ever (500 years worth!) q Short-run elasticity of supply is low & Demand shifts can cause large changes in price q Oil companies do rely on price discrimination . . . Non-Uniform Pricing n Firm uses information about demand to charge different prices for the same product to different groups of customers n Firm can increase its profits relative to uniform pricing n One form of non-uniform pricing is price discrimination Types of Price Discrimination...
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This note was uploaded on 11/14/2009 for the course PAM 2000 taught by Professor Evans,t. during the Spring '07 term at Cornell University (Engineering School).

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PAM_2000_Spring_2009_Lecture_21 - PAM 2000: Lecture 21 n PS...

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