Comm 295 - Class 12 Notes - Comm 295 10.1-10.5 Pricing with...

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Comm 295 10.1-10.5 Pricing with Market Power Uniform pricing : charging same price for every unit sold of a particular good Nonuniform pricing : where a firm charges consumers different prices for same product or charges a single customer a price that depends on number of units customer buys - Firm can earn higher profits with Nonuniform pricing o Captures some or all single-price CS o Firm converts single-price DWL into profit by charging different prices Price discrimination : charging consumers different prices for same good based on INDIVIDUAL CHARACTERISTICS 10.1 CONDITIONS FOR PRICE DISCRIMINATION 0 WHY PRICE DISCRIMINATION PAYS - Sell to customers who are willing to pay at higher prices, and sell to those who aren’t as willing at lower prices WHO CAN PRICE DISCRIMINATE - Must meet conditions: o Firm must have market power (monopoly, oligopoly, monopolistically competitive) o Groups/individuals must have different demand curves Must be able to identify how consumers differ o Must be able to prevent or limit resale PREVENTING RESALE - Resale is difficult/impossible for most services - Lower transaction costs, more likely resale will occur NOT ALL PRICE DIFFERENCES ARE PRICE DISCRIMINATION - PD is based on charging different prices for goods that cost the SAME to produce TYPES OF PRICE DISCRIMINATION Perfect price discrimination : first-degree price discrimination; firm sells each unit at max amount any customer is willing to pay Multi-group discrimination : third-degree price discrimination; charge groups of customers different prices (but not within group) Quantity-based price discrimination : second-degree price discrimination; charge different price for large purchases than small quantities 10.2 PERFECT PRICE DISCRIMINATION Reservation price : the maximum amount a person would be willing to pay for a unit of output - Firm captures ALL consumer surplus if it perfectly price discriminates - This is rare as firms lack full information about customers and their willingness to pay
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This note was uploaded on 12/07/2011 for the course COMM 295 taught by Professor Ratna during the Winter '09 term at The University of British Columbia.

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Comm 295 - Class 12 Notes - Comm 295 10.1-10.5 Pricing with...

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