Lecture 20 - 14 Price Discrimination Few industries are true monopolies(AT&T 1975 Few industries are perfectly competitive(agriculture In most

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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 $5 0 2 4 6 8 012345 Quantity ($/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
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This note was uploaded on 03/21/2010 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Lecture 20 - 14 Price Discrimination Few industries are true monopolies(AT&T 1975 Few industries are perfectly competitive(agriculture In most

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