Monopoly Behavior - Chapter Twenty-Five Monopoly Behavior...

Info iconThis preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter Twenty-Five Monopoly Behavior
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
How Should a Monopoly Price? So far a monopoly has been thought of as a firm which has to sell its product at the same price to every customer. This is uniform pricing . Can price-discrimination earn a monopoly higher profits?
Background image of page 2
Types of Price Discrimination 1st-degree : Each output unit is sold at a different price. Prices may differ across buyers. 2nd-degree : The price paid by a buyer can vary with the quantity demanded by the buyer. But all customers face the same price schedule. E.g., bulk-buying discounts.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Types of Price Discrimination 3rd-degree : Price paid by buyers in a given group is the same for all units purchased. But price may differ across buyer groups. E.g. , senior citizen and student discounts vs . no discounts for middle-aged persons.
Background image of page 4
First-degree Price Discrimination Each output unit is sold at a different price. Price may differ across buyers. It requires that the monopolist can discover the buyer with the highest valuation of its product, the buyer with the next highest valuation, and so on.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
First-degree Price Discrimination p(y) y $/output unit MC(y) y p y ( ) Sell the th unit for $ y p y ( ).
Background image of page 6
First-degree Price Discrimination p(y) y $/output unit MC(y) y p y ( ) ′′ y p y ( ) ′′ Sell the th unit for $ Later on sell the th unit for $ y p y ( ). ′′ y p y ( ). ′′
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
First-degree Price Discrimination p(y) y $/output unit MC(y) y p y ( ) ′′ y ′′′ y p y ( ) ′′ p y ( ) ′′′ Sell the th unit for $ Later on sell the th unit for $ Finally sell the th unit for marginal cost, $ y p y ( ). ′′ y p y ( ). ′′ ′′′ y p y ( ). ′′′
Background image of page 8
First-degree Price Discrimination p(y) y $/output unit MC(y) y p y ( ) ′′ y ′′′ y p y ( ) ′′ p y ( ) ′′′ The gains to the monopolist on these trades are: and zero. p y MC y p y MC y ( ) ( ), ( ) ( ) ′ - ′ ′′ - ′′ The consumers’ gains are zero.
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
First-degree Price Discrimination p(y) y $/output unit MC(y) ′′′ y So the sum of the gains to the monopolist on all trades is the maximum possible total gains-to-trade. PS
Background image of page 10
First-degree Price Discrimination p(y) y $/output unit MC(y) ′′′ y The monopolist gets the maximum possible gains from trade. PS First-degree price discrimination is Pareto-efficient.
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
First-degree Price Discrimination First-degree price discrimination gives a monopolist all of the possible gains-to-trade, leaves the buyers with zero surplus, and supplies the efficient amount of output.
Background image of page 12
Price paid by buyers in a given group is the same for all units purchased. But price may differ across buyer
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/03/2011 for the course ECON 206 taught by Professor Ioanadan during the Spring '10 term at University of Toronto- Toronto.

Page1 / 73

Monopoly Behavior - Chapter Twenty-Five Monopoly Behavior...

This preview shows document pages 1 - 14. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online