19 Price Discrimination

19 Price Discrimination - Price Discrimination 2/18/11...

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Price Discrimination 2/18/11 12:01 AM Price discrimination Discrimination: treating people differently based on some characteristic, e.g. race or gender (illegal and not price discrimination) Price discrimination : charging different prices to different consumers for the same good when the price differences are not due to differences in cost To price discriminate o A firm must have market power o Some consumers must be willing to pay more and the firm must be able to figure out who is who o The firm must be able to segment the market in a way that makes arbitrage impossible Perfect or first degree price discrimination o A firm can increase profit by charging a higher price to buyers with higher WTP, they know what people are willing to pay o No more CS, all PS, but this doesn’t’ happen in the real world Perfect Price Discrimination vs. Single Price Monopoly Graph on slide 5 o The monopolist charges the same price to all buyers, resulting in a deadweight loss Graph on slide 6
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19 Price Discrimination - Price Discrimination 2/18/11...

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