L21 - Uniform pricing y p = 10 p Lecture 21 TC y = 1 2 y p...

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1 Lecture 21 Monopoly behavior Uniform pricing ( ) 10 y p p = ( ) 1 2 TC y y = + p y Elasticity and markup y p y p ε Δ Δ = Gains to trade, CS, PS and DWL ( ) 10 y p p = ( ) 1 2 TC y y = + p y
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2 How Should a Monopoly Price? The same price for each unit to every customer - uniform pricing . Price discrimination – many different prices for the same good Can price-discrimination earn a monopoly higher profits? Types of Price Discrimination 1st-degree : Prices may differ across output units and buyers. 2nd-degree : Prices may differ across output unit but not buyers. (E.g. bulk- buying discounts.) 3rd-degree : Prices may differ across buyers but not output units (student discounts) Two part tariff First-degree price discrimination ( ) 10 y p p = ( ) 1 2 TC y y = + p y First-degree Price Discrimination First-degree price discrimination gives a monopolist all of the possible gains-to-trade, buyers are with zero surplus, efficient amount of output.
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3 Third-degree Price Discrimination Market has segments - groups of buyers (seniors, students, adults) In each segment the same price
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