Lecture6_Advanced_Pricing_Econ121_Fall2010

Lecture6_Advanced_Pricing_Econ121_Fall2010 - Lecture 6...

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Click to edit Master subtitle style 4/28/11 Lecture 6 Advanced Pricing Strategies Econ 121: Industrial Organization UC Berkeley Fall 2010 Prof. Cristian Santesteban
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4/28/11 Overview Third degree price discrimination – graphical presentation Two-part tariffs Peak load pricing Bundling
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4/28/11 Third-Degree Price Discrimination Consumers are divided into two groups, with separate demand curves for each group. Quantity D2 MR 2 $/Q D1 MR 1
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4/28/11 Third-Degree Price Discrimination QT (MR) = Q1 (MR) + Q2(MR) Quantity D2 MR 2 $/Q D1 MR 1 QT(MR )
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4/28/11 Third-Degree Price Discrimination At Q=QT, MC=MR1=MR2 At Q<QT, MC<MR1=MR2 At Q>QT, MC>MR1=MR2 Quantity D2 MR 2 $/Q D 1 MR 1 QT(MR ) MC QT
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4/28/11 Third-Degree Price Discrimination Given MC=MR1, we can find Q1 and P1 Quantity D2 MR 2 $/Q D 1 MR 1 QT(MR ) MC QT Q1 P1
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4/28/11 Third-Degree Price Discrimination Quantity D2 MR 2 $/Q D 1 MR 1 Given MC = MR2, we can find Q2 and P2 QT(MR ) MC QT Q1 P1 Q2 P2
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4/28/11 Net Welfare Effects of 3rd Degree Price Discrimination Profits increase since monopolist could have charged a uniform price but did not. Consumers in the segment with the lower elasticity are worse off since the price in this segment has gone up. Consumers in the segment with the higher elasticity are better off since
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4/28/11 Net Welfare Effect of 3rd Degree Price Discrimination In general, cannot say whether welfare improving. Two cases where we can say something. Case 1: total quantity produced is the same or lower than the monopoly quantity. In this case, there is a consumption
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4/28/11 Third Degree Price Discrimination
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4/28/11 Price Discrimination – Necessary Conditions The firm must possess market power No arbitrage (or resale) Gray markets are a good example of attempts to unravel price discrimination Many branded electronic goods were once available at New York discount stores in either the “made for U.S. market” version (which carried the full warranty) or a cheaper gray-market version which had been originally manufactured for a different,
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Arbitrage Whether arbitrage is possible depends on the transaction costs of resale. Arbitrage will not occur if the transaction costs of resale are greater than the price differential since then the profits of arbitrage will be negative. The transaction costs associated with
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This note was uploaded on 04/28/2011 for the course ECON 121 taught by Professor Woroch during the Fall '07 term at University of California, Berkeley.

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Lecture6_Advanced_Pricing_Econ121_Fall2010 - Lecture 6...

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