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Unformatted text preview: Necessary Conditions for Price Discrimination z For price discrimination to work, the firm must be able to set the price. z The firm must be able to “segment the market” That is, the firm must be able to: z Separate the customers z Prevent resale of the product Price Discrimination in Action 3 The Early Bird Gets a Lower Price z Early Bird Specials— Restaurants charge special, lower prices for early diners. z Matinees—Theaters charge less for earlier shows. z Air Fares—Airlines charge less for flyers willing to fly “off peak,” i.e. early morning and late night. Perfect Price Discrimination z By discriminating, a monopoly firm makes greater profits than it would make by charging both groups the same price. z A firm with market power could collect the entire consumer surplus if it could charge each customer exactly the price that that customer was willing and able to pay. This is called perfect price discrimination ....
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