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Week 9 Lecture_Price_Discrimination

Week 9 Lecture_Price_Discrimination - Week 9 Price...

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Week 9 Price Discrimination
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Many examples of non- uniform pricing Doctors charge different price for insured and  uninsured patients. Student discount Definition: the seller  price discriminates  when  two units of the same physical good are sold  at different prices.
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We will look at: Perfect (first degree) price discrimination Second degree price discrimination Third degree price discrimination For this section, we will model the consumers’ decision  in a very simplistic way: every consumer has a  willingness-to-pay v (different from consumer to  consumer) for one unit. They buy if their v – p   0. If  there are multiple options, they pick one with the  highest non-negative v – p.
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Perfect price discrimination If the seller knows everyone’s v, then the  price discrimination can be perfect! Perfect PD: charge the willingness-to-pay for  every one. It extracts all the consumer surplus. 
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Profit Perfect Price Discrimination Demand q P MC You can think of the demand curve as consumers with different willingness-to-pay lined up from high v to low v.
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Profit Perfect Price Discrimination Demand q P MC Profit if uniform pricing MR
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Third-degree price  discrimination
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