{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture 20 - 14 Price Discrimination Few industries are...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
11/25/2009 1 Price Discrimination 14 Few industries are true monopolies (AT&T 1975) Few industries are perfectly competitive (agriculture) In most industries, firms try to create and maintain market power: price setting ability How? Branding and Marketing (AOL, GM) Differentiation and Innovation (Chrysler, Toyota) Control of Standards (M$) When you have market power, i.e. face a downward sloping demand curve, pricing can me a lot more innovative than one price per unit. efficient, but all surplus PS Sell 1st unit at $9 Price Discrimination first degree --- perfect price discrimination different price (MB) for each unit sold 14 10 sell more if p>MC two-part tariff price at MC Sell 3rd unit at $3 Sell 2nd unit at $5 0 2 4 6 8 0 1 2 3 4 5 Quantity ($/unit) D MC Monopolist’s Revenue require payment of surplus generated Price Discrimination third degree different prices in different markets 14 MR=MC in each market price determined by demand ($/unit) Market 1: Relatively Inelastic Demand Market 2: Relatively Elastic Demand price higher in market where demand less elastic Charge relatively higher price in market 1
Background image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}