Unformatted text preview: PADP 6950: Founda1ons of Policy Analysis Perfect Compe,,on & Monopoly PRACTICE Angela Fer1g, PhD Price Discrimina1on Game Break up into 6 groups of 4-5 people each Within each group, split into buyer group (exactly 2) and seller group (rest of group) The product is pharmaceu1cals 1 Buyers I'll give your group a total of 8 cards assume each represents one person. Don't worry about color of card. The value on the card represents the dollar value of the u1lity that person receives if you purchase a unit of the product for them. Earnings = sum (u1lity price paid) You do not have to purchase for every person/ card, but earnings=0 if you do not purchase. Record earnings for all 8 people each round. Sellers You act as a single firm selling to a group of buyers Come to a consensus on price in each round. Must sell at a price above marginal cost, which is $1. Sell as many units as are requested by consumers. Earnings = (Price paid - $1)*Quan1ty sold 2 First game Seller announces one price Buyers decide who to buy for (of their 8 people) Calculate earnings and record on your sheets Let's do 3 rounds Second game 2 buyers separate: One takes blue cards: you are the American buyer rep One takes red cards: you are the Mexican buyer rep Seller chooses 2 prices (one for each na1on) Provide price privately so that US doesn't know Mexico's price, and vice versa. Mexican buyer rep makes purchases first Calculate earnings and record on sheet Let's do 3 rounds 3 Third game Same as 2nd game from sellers perspec1ve Seller offers 2 prices Mexican buyer rep buys American buyer rep buys Record earnings Sellers step out of the room so I can tell buyers about the change Discussion In which game were the earnings highest for sellers (profit)? For buyers (CS)? How could the firms earn even more profit than in the highest profit game? Is price discrimina1on profitable for firms? Is it good (welfare-improving) for Mexican buyers? Does it hurt American buyers? What happens to total CS? And total welfare? What are the consequences of arbitrage in game 3? What condi1ons exist such that price discrimina1on is possible in game 2? 4 ...
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This note was uploaded on 01/18/2012 for the course PADP 6950 taught by Professor Fergi during the Spring '11 term at UGA.
- Spring '11