Lecture 22 Pricing - FIN501 FinancialEconomics Lecture22:TopicsinPricing 1 Announcements ProblemSet#.DueonTuesday,November 16 Midterms

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
1 FIN 501 Financial Economics Lecture 22: Topics in Pricing Professor Nolan Miller
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Announcements Problem Set #7 is available on Compass.  Due on Tuesday, November  16. Midterms: MSFE: returned in class (or review session, or TA office hours). MSF: returned during the review session tomorrow or available in TA office  hours on Monday.  Information on distribution will be distributed by email.
Background image of page 2
3 Overview Last time we looked at the basics of monopoly. Today, we will take a deeper look at different pricing techniques that a  monopoly can use to improve profit. We’ll also consider other “topics” in monopoly pricing. Note: we will be discussing pricing techniques in the context of a  monopolist. However, they are applicable beyond monopoly.  Whenever  a firm has a differentiated product, it will enjoy some degree of monopoly  power.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Price Discrimination Last time, we considered non-uniform pricing, which applied to the case where all  consumers were the same. Today we begin by looking at pricing techniques the monopolist can use to  improve profit when it faces heterogeneous consumers. Price discrimination : charging different prices to different consumers, or  different groups of consumers. Price discrimination techniques are categorized into one of three  degrees : First degree:  charging each consumer his willingness to pay. Second degree:  offering a menu of options from which consumers can  choose (self-selection mechanisms). Third degree:  charging different prices to different types of consumers  based on an observable characteristic. I’ve never been clear on why these are ordinal.  They’re really just three different  types of techniques.
Background image of page 4
5 First Degree Price Discrimination 1 st  degree price discrimination is also known as perfect price  discrimination. Each consumer is charged an individual price. Assumption: monopolist can observe each individual’s willingness to pay  for the product. Idea: Since the monopolist can observe willingness to pay and charge  an individually tailored price, the monpolist will charge each individual  his/her full willingness to pay.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 First Degree P.D. Think of the demand curve as consisting  of a lot of people, each of whom wants to  buy one unit. Height of demand curve is their wtp. M. can observe each person’s wtp. For every unit sold, charge wtp.
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/05/2011 for the course FIN 580 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

Page1 / 42

Lecture 22 Pricing - FIN501 FinancialEconomics Lecture22:TopicsinPricing 1 Announcements ProblemSet#.DueonTuesday,November 16 Midterms

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online