ajaz_204_2009_lecture_18

ajaz_204_2009_lecture_18 - University of Toronto Department...

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University of Toronto Department of Economics ECO 204 2009 2010 Sayed Ajaz Hussain Lecture 18 1 Ajaz Hussain. Department of Economics. University of Toronto (St. George)
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Today ± Basis of Price Discrimination ² Consumer Surplus = Money on the Table ± Capturing consumer surplus ² 1 st degree price discrimination ² Price on customer by customer basis ² 2 nd degree price discrimination ² Price by type of demand o Two part tariffs o Observable types o Unobservable types Ajaz Hussain. Department of Economics. University of Toronto (St. George) 2
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Price Discrimination Ajaz Hussain. Department of Economics. University of Toronto (St. George) 3 Firm Output Inputs Market 1 st Degree: price discriminate by individual customers 2 nd Degree: price discriminate by access fee and usage fee 3 rd Degree: price segment discriminate by segment Bundling: price products as a bundle and individually Intertemporal Price Discrimination: price over time
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Consumer Surplus Ajaz Hussain. Department of Economics. University of Toronto (St. George) Q P Demand Consumer Surplus = price willing to pay–price paid = WTP–P Consumer Surplus = Money on the Table ↑ ∏ by CS Suppose uniform price is = $100 5 1 2 C C V V 4 C C V V
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Recall from PTC case P = 1,466 – 4.83Q C = 197,820 + 28Q Profit max: Q = 148.9 , P $747 Interpret Gross Margin = (P AVC)Q = (747 28)(149) $107,131 CS = Gross margin Commercial Consumer Surplus in PTC Ajaz Hussain. Department of Economics. University of Toronto (St. George) 5 $ q R $ q Demand MR = 1466 – 9.66Q TVC = 28Q MC 28 1466 747 149
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st Degree Price Discrimination Instead of charging a uniform price of $747/hour for 149 hours, charge the maximum WTP for each unit In PTC example: P c = 1,466 – 4.83Q c Ajaz Hussain. Department of Economics. University of Toronto (St. George) 6 Q c Max WTP c = 1,466 4.83Q c 1 1,466 4.83(1) = 1,461.17 2 1,466 4.83(2) = 1,456.34 3 1,466 4.83(3) = 1,451.51 .. .. But do we continue selling 149 units? No: sell > 149.
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ajaz_204_2009_lecture_18 - University of Toronto Department...

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