V25yuan - 2010 W. W. Norton & Company, Inc. 25...

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Unformatted text preview: 2010 W. W. Norton & Company, Inc. 25 Monopoly Behavior 2010 W. W. Norton & Company, Inc. 2 Outline First-degree price discrimination Second-degree price discrimination Third-degree price discrimination Two-part tariff 2010 W. W. Norton & Company, Inc. 3 How Should a Monopoly Price? So far a monopoly has been thought of as a firm which has to sell its product at the same price to every customer. This is uniform pricing. Can price-discrimination earn a monopoly higher profits? 2010 W. W. Norton & Company, Inc. 4 Types of Price Discrimination 1st-degree: Each output unit is sold at a different price. Prices may differ across buyers. 2nd-degree: The price paid by a buyer can vary with the quantity demanded by the buyer. But all customers face the same price schedule. E.g., bulk-buying discounts. 2010 W. W. Norton & Company, Inc. 5 Types of Price Discrimination 3rd-degree: Price paid by buyers in a given group is the same for all units purchased. But price may differ across buyer groups. E.g. , senior citizen and student discounts vs . no discounts for middle-aged persons. 2010 W. W. Norton & Company, Inc. 6 First-degree Price Discrimination Each output unit is sold at a different price. Price may differ across buyers. It requires that the monopolist can discover the buyer with the highest valuation of its product, the buyer with the next highest valuation, and so on. 2010 W. W. Norton & Company, Inc. 7 First-degree Price Discrimination p(y) y $/output unit MC(y) y p y ( ) y y p y ( ) p y ( ) The gains to the monopolist on these trades are: and zero. p y MC y p y MC y ( ) ( ), ( ) ( ) - - The consumers gains are zero. 2010 W. W. Norton & Company, Inc....
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This note was uploaded on 06/12/2011 for the course ECON 101 taught by Professor Dee during the Spring '10 term at Andhra University.

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V25yuan - 2010 W. W. Norton & Company, Inc. 25...

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