II_Monoply Power in Theory and Practice

II_Monoply Power in Theory and Practice -...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
II. Monopoly Power in Theory and Practice eading: Chapter 5 Reading: Chapter 5 6 1
Background image of page 1

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

View Full DocumentRight Arrow Icon
II.I. Price Discrimination and Monopoly: Linear Pricing t d t i Introduction Prescription drugs are cheaper in Canada than the nited States United States Textbooks are generally cheaper in Britain than the United States Examples of price discrimination resumably profitable presumably profitable should affect market efficiency: not necessarily versely ad e se y is price discrimination necessarily bad–even if not seen as “fair”? Chapter 5: Price Discrimination: Linear Pricing 2
Background image of page 2
II.I. Price Discrimination and Monopoly: Linear Pricing ibilit f i di i i ti Feasibility of price discrimination Two problems confront a firm wishing to price discriminate entification the firm is able to identify demands of different identification : the firm is able to identify demands of different types of consumer or in separate markets easier in some markets than others: e.g tax consultants, doctors arbitrage : prevent consumers who are charged a low price from reselling to consumers who are charged a high price prevent re importation of prescription drugs to the United States The firm then must choose the type of price discrimination first degree or personalized pricing second degree or menu pricing third degree or group pricing Chapter 5: Price Discrimination: Linear Pricing 3
Background image of page 3

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

View Full DocumentRight Arrow Icon
II.I. Price Discrimination and Monopoly: Linear Pricing i d i di i i ti Third degree price discrimination Consumers differ by some observable aracteristic(s) characteristic(s) A uniform price is charged to all consumers in a particular group – linear price iff t if i hd t diff t Different uniform prices are charged to different groups “kids are free” subscriptions to professional journals e.g. American Economic Review rlines airlines the number of different economy fares charged can be very large indeed! l i d il fi t f i Chapter 5: Price Discrimination: Linear Pricing 4 early bird specials; first runs of movies
Background image of page 4
II.I. Price Discrimination and Monopoly: Linear Pricing i d i di i i ti Third degree price discrimination The pricing rule is very simple: consumers with low elasticity of demand should be charged a high price consumers with high elasticity of demand should be charged a low price Chapter 5: Price Discrimination: Linear Pricing 5
Background image of page 5

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

View Full DocumentRight Arrow Icon
II.I. Price Discrimination and Monopoly: Linear Pricing i d i di i i ti l Third degree price discrimination: example Harry Potter volume sold in U.S. and Europe y p Demand: nited States: = 36 United States: P U 36 4 Q U Europe: P E = 24–4 Q E arginal cost constant in each market Marginal cost constant in each market MC = $4 Chapter 5: Price Discrimination: Linear Pricing 6
Background image of page 6
II.I. Price Discrimination and Monopoly: Linear Pricing i d i di i i ti l Third degree price discrimination: example Suppose that the same price is charged in both markets
Background image of page 7

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

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 65

II_Monoply Power in Theory and Practice -...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online