price_discrimination-ho

price_discrimination-ho - Monopoly Behavior or Price...

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Monopoly Behavior or Price Discrimination Chapter 25 monoply.gif (GIF Image, 289x289 pixels) ht p:/ i4.photobucket.com/albums/y144/AlwaysWondering1/monoply.gif?. .
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Monopoly Pricing Uniform pricing: charging the same price to every customer Competitive firms are price takers , suffer losses if they don’t charge the one, uniform market price We’ve been thinking about the behavior of a monopolist charging a uniform price But, a monopolist is a price maker , free to set price, including non-uniformly Today: non-uniform pricing, especially price discrimination Price discrimination: different prices for different people Other non-uniform pricing schemes: two-part tariffs, bundling, tie-ins
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Non-uniform Pricing Price-discrimination earns a monopoly higher profits Non-discriminating firm faces tradeoff: Charge high price for customers with high WTP Charge low price and sell more units to more customers Optimum typically involves compromise Price-discriminating firm avoids this tradeoff: Charges higher price to those with high WTP capturing their consumer surplus Charges lower price to those with less WTP generating extra sales
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Example Movie theater, MC = 0: everyone fits, showing movie is costless, so π = revenue Potential audience: 10 college students WTP $10, 20 senior citizens WTP $5 Uniform price = $5 = π = 5 · 10 + 5 · 20 = 50 + 100 = 150 Uniform price = $10 = π = 10 · 10 + 10 · 0 = 100 = 100 Price discriminate = π = 10 · 10 + 5 · 20 = 100 + 100 = 200
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price_discrimination-ho - Monopoly Behavior or Price...

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