Principles of Economics- Mankiw (5th) 327

Principles of Economics- Mankiw (5th) 327 - CHAPTER 15 M O...

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CHAPTER 15 MONOPOLY 337 difficult for readers in one country to buy books in the other. How does this dis- covery affect Readalot’s marketing strategy? In this case, the company can make even more profit. To the 100,000 Australian readers, it can charge $30 for the book. To the 400,000 American readers, it can charge $5 for the book. In this case, revenue is $3 million in Australia and $2 mil- lion in the United States, for a total of $5 million. Profit is then $3 million, which is substantially greater than the $1 million the company could earn charging the same $30 price to all customers. Not surprisingly, Readalot chooses to follow this strategy of price discrimination. Although the story of Readalot Publishing is hypothetical, it describes accu- rately the business practice of many publishing companies. Textbooks, for example, are often sold at a lower price in Europe than in the United States. Even more im- portant is the price differential between hardcover books and paperbacks. When a
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