PPTChapter11

PPTChapter11 - Managerial Economics Dr. Cliff Hawley BADM...

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Prof. Clifford B. Hawley Managerial Economics Dr. Cliff Hawley BADM 631 Pricing Strategies and Practices Chapter 11
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Prof. Clifford B. Hawley Some Pricing Strategies and Practices 1. Markup Pricing 2. Price Discrimination 3. Access Pricing 4. Bundling 5. Peakload Pricing 6. Joint Products 7. Transfer pricing (no slides)
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Prof. Clifford B. Hawley Markup Pricing --- a common business practice --- example: buy the product wholesale for $10, sell for $15, a 50% markup. --- the mystery: “seems” to be a pricing method based on cost only, not on the demand side and thus the consumer’s willingness to pay
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Prof. Clifford B. Hawley Recall that Marginal Revenue, Demand , and Elasticity are related as: MR = P [(ed +1)/ed)] If profit maximizer, MC=MR. Markup Pricing
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Prof. Clifford B. Hawley Markup Pricing mystery solved by observing that markups vary across products and that: optimal markup depends on the price elasticity of demand:
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Prof. Clifford B. Hawley Markup pricing relationship between optimal markup and elasticity of demand begins with these relationships: MC = MR and MR = P [(ed + 1)/ed)]
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Prof. Clifford B. Hawley MR = P [(ed + 1)/ed)] The above is an important equation: It relates 3 important concepts: MR = Marginal Revenue P = Price ed = own price elasticity of demand
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Prof. Clifford B. Hawley Price Discrimination Three kinds: 1st degree 2nd degree 3rd degree
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Prof. Clifford B. Hawley Price Discrimination is charging different prices, with these differences not based on costs but instead on differences in demand or willingness to pay
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Prof. Clifford B. Hawley
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This note was uploaded on 10/16/2010 for the course B&E BADM 631 taught by Professor Hawley during the Spring '10 term at WVU.

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PPTChapter11 - Managerial Economics Dr. Cliff Hawley BADM...

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