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Unformatted text preview: lden goose by overproduction (examples: PT Crusier and the Ford
ECO 204 Chapter 16: Analysis of Firms with Market Power (this version 2012-2013) University of Toronto, Department of Economics (STG). ECO 204, S. Ajaz Hussain. Do not distribute. Some clubs and bars segment the market by gender, charging a lower cover charge to females. Given the preponderance of segmentation, the question arises: what is the basis of segmentation? The optimal price
rule has the answer. Suppose a business has segmented the market into segment A and B and if it’s charging the optimal
price in each segment then: Notice that the
of segment A is the same as segment B (this is a convenient assumption). The expressions imply that
is feasible so long as
. This fundamental result tells us that we should look for
groups of consumers who differ with respect to price elasticity. This is in stark contrast to elementary marketing courses
which, and marketers who, a priori presume that the basis of segmentation is gender, income, marital status, etc.
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