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games - Suppose that there is a market demand for a product...

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Suppose that there is a market demand for a product P= 14 – .6Q with MR = 14 “–” 1.2Q And a cost structure TFC =4 TVC =2Q, with MC =2 Determine Profit max solution. Now suppose that this market can be segmented into two markets with demand’s P 1 = 10 – Q 1 with MR 1 = 10 – 2Q 1 and P 2 = 20 – 1.5Q 2 with MR 2 = 20 – 3Q 2 The cost structure does not change. Determine Profit max solution.
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Indirect Price Discrimination – creating value by consummating all wealth creating transactions Cannot identify consumers by group, and/or Prevent arbitrage Must be concerned with Maintaining separation of consumer groups by value (prevent cannibalizing markets Preventing rivals from entering the market Pricing and product design to capture value Examples include Coupons Damaged goods strategy Volume discounts Bundling products
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Bundling – can be used to increase profits or as an entry deterrent (tying – bundling complementary products) Simple bundling: Offer several products or services as one package – consumers do not have option to purchase package components separately Mixed Bundling: allows consumers to purchase bundle or single components (price of bundle is typically less than sum of component prices.) 1.No basic analytical model - must use simulation or experimentation to arrive at best result 2.Works best if reservation prices are negatively correlated by group.
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Simple Bundling Assume there are equal numbers of consumers grouped by time of day with the following values for goods A and B. For both goods, MC = AVC and is constant. The MC of good A is 10 and the MC of Good B is 40. Is there an optimal bundling strategy? Before 8:00 After 9:00 WTP WTP GOOD A 70 60 GOOD B 50 100 Price Separately GOOD A at 60 and GOOD B at 100: Profit (A) = 120 - 20 = 100 ; Profit (B) = 100-40 = 60 Bundle A & B at Price = 120 Profit = 240 – 100 =140 Bundle A & B at P = 160 And sell A at 70. Profit = (160- 50) + (70-10) = 170
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Game Theory Zero -Sum Non-zero sum Cartel Games Wealth Transfer Mechanisms Cooperative players can communicate Noncooperative (players cannot communicate) Negotiations Trading Interdependent firms Auctions
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