Week 9 Monopoly (cont) and Monopolistic Competition

Week 9 Monopoly (cont) and Monopolistic Competition - 1...

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Unformatted text preview: 1 Monopoly (cont.) (TF Chapter 10) 2 Todays Agenda Monopoly pricing Price discrimination Two part tariff Bundling Monopolistically competitive Industry Characteristics Short run and long run Comparison to perfect competition 3 Price Discrimination (cont.) Recall, price discrimination involves charging different prices to different customers for the same good Three types First degree (perfect) price discrimination Second degree price discrimination Third degree price discrimination 4 First Degree Price Discrimination The monopolist can charge a different price for every unit sold The monopolist charges the maximum willingness to pay Also called perfect price discrimination because the monopolist extracts all the consumer surplus Requires knowledge of the exact willingness to pay for every consumer for every unit sold Rare in practice, most likely in one-on-one bargaining 5 Single Price Monopolist MR Q D MC Consumer surplus Economic profit ATC P 6 Perfect Price Discrimination Q D ATC MC Increase in economic profit from perfect price discrimination P 7 Efficiency and Perfect Price Discrimination With perfect price discrimination Output increases to the point at which MC = D Output is identical to perfect competition There is no consumer surplus The monopolist captures all of the surplus Deadweight loss is zero - perfect price discrimination achieves efficiency 8 Second Degree Price Discrimination The monopolist offers different pricing options and allows consumers to select amongst them The monopolist cant distinguish between the groups The monopolist knows the demand curve for each group Need to cleverly design a set of prices to induce more inelastic groups to pay higher prices 9 D MR ATC Q $ MC Q Q S P P S Second Degree Price Discrimination Fig 10.13 Profit increase due Profit increase due to bulk discounts to bulk discounts Profit increase due Profit increase due to higher prices on to higher prices on small quantities small quantities D MR Q $ ATC MC Q Q S P P S 10 Third Degree Price Discrimination The monopolist charges different prices to different groups of consumers The monopolist must be able to identify each group and prevent any imitation/resale The monopolist needs to know the demand curve for each group 11 MC D D B B Q Q B P P B MC Third Degree Price Discrimination Fig 10.12 Q $ Holiday Travellers Q $...
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This note was uploaded on 08/18/2011 for the course ECON 1001 taught by Professor - during the Three '07 term at University of Sydney.

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Week 9 Monopoly (cont) and Monopolistic Competition - 1...

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