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Unformatted text preview: Department of Economics University of California, Berkeley ECON 100A Spring 2010- Section 17 GSI: Antonio Rosato Pricing with Market Power Price Discrimination We already know that market power enables a monopoly to make higher profit than a competitive firm. This is done by capturing some of the surplus that would otherwise go to consumers. But a firm can do better than that and capture even more of the surplus than in the simple monopoly case, by using one of several pricing schemes known as price discrimination . There are three conditions for price discrimination: 1. Market power - competitive firms cannot price discriminate. 2. Ability to identify willingness to pay of different consumers, or differences in will- ingness to pay of the same consumer (downward sloping demand.) 3. Prevent or limit resales. If a firm does not discriminate, it charges a single price for its product. Nondiscriminating firm faces a trade-off between charging (i) Maximum price to consumers who really want the good, and (ii) A low enough price so that less enthusiastic customers still buy the good....
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- Spring '08