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. sayed.hussain@utoronto.ca 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. sayed.hussain@utoronto.ca 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. sayed.hussain@utoronto.ca 3 3 rd Degree Price Discrimination S. Ajaz Hussain. sayed.hussain@utoronto.ca 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. sayed.hussain@utoronto.ca 5 Choose Q A and Q B to maximize total profits from segments A and B:...
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204_summer_2009_lecture_20 - University of Toronto...

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