204_summer_2009_lecture_20

204_summer_2009_lecture_20 - University of Toronto...

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Unformatted text preview: University of Toronto Department of Economics ECO 204 Summer 2009 Sayed Ajaz Hussain Lecture 20 1 S. Ajaz Hussain. [email protected] Last Time ¡ Consumer Surplus = Money on the Table ¡ Capturing consumer surplus ¢ 1 st degree price discrimination ¢ Prices on a customer by customer basis ¢ 2 nd degree price discrimination ¢ Prices by volume (“block prices”) o One customer type o Two observable customer types o Two unobservable customer types S. Ajaz Hussain. [email protected] 2 Assumed profitable to attract both types Today ¡ 3 rd degree price discrimination: ¢ Pricing by segment ¢ No capacity constraint and no arbitrage possibilities ¢ Capacity constraint and no arbitrage possibilities ¢ No capacity constraint and arbitrage possibilities ¢ Omit: Capacity constraint and arbitrage possibilities ¡ Bundling: ¢ Prices for bundled vs. individual products ¢ Pure bundling ¢ Mixed bundling S. Ajaz Hussain. [email protected] 3 3 rd Degree Price Discrimination S. Ajaz Hussain. [email protected] 4 Firm Output Inputs Price Maker Price Taker Segment A Segment B Output ¡ From optimal pricing rule, segments are groups of customers with differential price elasticities ¡ Elasticity of segment A ≠ Elasticity of segment B ¡ In “pure” third degree price discrimination: MC A = MC B ¡ However, we allow for MC A ≠ MC B : more general result 3 rd Degree Price Discrimination: No Capacity Constraint and No Arbitrage S. Ajaz Hussain. [email protected] 5 Choose Q A and Q B to maximize total profits from segments A and B:...
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This note was uploaded on 05/02/2011 for the course ECO 204 taught by Professor Hussein during the Fall '08 term at University of Toronto.

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204_summer_2009_lecture_20 - University of Toronto...

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