12 Price Discrimination

12 Price Discrimination - Chapter 12 Price Discrimination...

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Chapter 12 Price Discrimination
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Interpol broke up a drug ring smuggling, not heroin or cocaine, but combivir, an anti-AIDS drug. Why smuggle that?
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Price Discrimination Combivir is patented by GlaxoSmithKline Patent holders are monopolists Monopolists are Price Searchers, not Price Takers GlaxoSmithKline was charging $12.50 a pill in Europe and $.50 in Africa Why would they do that? The price difference created an arbitrage opportunity for smugglers
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Monopoly Pricing Strategies So far, we have assumed that monopolies charge all customers the same price Can they capture even more surplus, if they can charge different consumers different prices?
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Price Discrimination
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Price Discrimination Different persons must have different elasticities of demand Monopolists will charge a higher price to those with less elastic demand Monopolists must be able to segregate those with differing elasticities Low price buyers must be unable to resell the goods to high price buyers
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Price Discrimination
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How can firms with market power prevent arbitrage? Diesel fuel and home heating oil Home heating oil sells for less, and is dyed red Ethanol for industrial uses and for consumption (liquor) Industrial ethanol is “denatured” (poisoned with benzene) Don’t drink the ethanol in chemistry lab
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Price Discrimination in Airfares
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Price Discrimination in Airfares Demand by business travelers is less elastic than “vacationers”
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How can airlines tell business travelers from vacationers? Vacationers are more likely to purchase
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This note was uploaded on 11/07/2010 for the course ECH 434 taught by Professor Dfs during the Spring '10 term at Binghamton University.

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12 Price Discrimination - Chapter 12 Price Discrimination...

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