10-Advanced_Topics_in_Pricing

10-Advanced_Topics_in_Pricing - Advanced Topics in Pricing...

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Advanced Topics in Pricing Econ 425, Summer I 2008
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2 Intro b Two additional pricing techniques: - Two-part tariff: firm charge an entry and usage fee. - Tie-in sales: when multiple products must be purchased at the same time. b These pricing strategies also rely on idea of offering consumers several options to choose from, so they self-select and reveal their “type”. b As before, we assume that resale is not possible.
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3 Two-part tariff b Two-part tariff: - entry fee: lump-sum fee for right to use/buy product; - usage fee: usage charge per unit. e.g. prepaid cellular phones, amusement parks. b If all consumers were identical, a single two-part tariff can be used to extract all consumer surplus. b But, typically there is more than one type of consumers.
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4 Two-part tariff (2) b If firm cannot distinguish between individual customers, but knows the demand curves of both types, it can offer two different two-part tariffs. b The idea is that each consumer will choose the one that is best for him (self-selection). b Overall, a firm will design its pricing structure to maximize profits subject to a self-selection constraint. - consumers should choose the two-part tariff designed for them!
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5 Two-part tariff (3) b If Type 2 consumers demand more units than Type 1, offer (F 1 ,p 1 2 ,p 2 ), where F 2 > F 1 2 < p 1 . $ Q p 1 Type 2 demand F 1 $ p 2 Type 2 demand F 2 Q Tariff 1 Tariff 2 Remaining CS Note that Type 2 consumers benefit from presence of Type 1 consumers!
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6 Tie-in sales b Tie-in sale: consumer can buy one good only by purchasing another good
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This note was uploaded on 05/01/2011 for the course ECON 425 taught by Professor Watugala during the Spring '06 term at Texas A&M.

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10-Advanced_Topics_in_Pricing - Advanced Topics in Pricing...

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