Lecture5_PriceDiscrimination_Econ121_Fall2010

Lecture5_PriceDiscrimination_Econ121_Fall2010 - Lecture 5...

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Click to edit Master subtitle style 4/28/11 Lecture 5 Price Discrimination Econ 121: Industrial Organization UC Berkeley Fall 2010 Prof. Cristian Santesteban
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4/28/11 Overview First Degree (or Perfect) Price Discrimination – not feasible in practice Second Degree Price Discrimination – quantity discounts or differential quality Third Degree Price Discrimination – different prices to different groups of people
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4/28/11 First Degree Price Discrimination Firm (with market power) prices so that each consumer pays his reservation price. Efficient outcome attained In practice, this is impossible to do because of asymmetric information Firm does not know each consumer’s reservation price. Hard to distinguish between corporate guy and student. If
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4/28/11 Second Degree Price Discrimination Non linear pricing – the price per unit of output is not constant but depends on how much you buy Firm offers consumers quantity discounts Firm charges different prices for different quantities of the good Block pricing – electric power, natural
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4/28/11 55 Second Degree Discrimination Price Quantit y P1 P2 P3 Q1 Q2 Q3 D Captured CS
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4/28/11 66 1st vs. 2nd Degree Discrimination There are two distinct differences between the two  basic types of discrimination.  1) Structure:  in Second Degree price discrimination structure is the  same for everyone This means that the monopolist is obviously not able to  utilise the fact that there are differential elastic responses  among all buyers – they have specific categories.  2) CS Absorption: The second degree price discriminator is unlikely to be  able to capture as much of the consumer surplus as the 
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4/28/11 Second Degree Price Discrimination Problem: the high-willingness-to-pay
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Lecture5_PriceDiscrimination_Econ121_Fall2010 - Lecture 5...

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