Chapter12

# 1 1 2 2 mr mc q mr mc q price discrimination third

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1 1 2 2 0 0 MR MC Q MR MC Q

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Price Discrimination. Third Degree Price Discrimination.
Price Discrimination. Second Degree Price Discrimination. Charge small number of different prices in one group/market (quantity discount)

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Price Discrimination Second Degree Price Discrimination. Exercise (Hurdle Model of Price Disc.) A monopolist has the total cost curve as: TC= He sets two price P H and P L . To be eligible to buy at P L , buyer needs to present a coupon cut from a local newspaper (hurdle). Suppose the demand curve is: P = 20 Q. What are the profit maximizing values of P H and P L . What is the resulting economic profit? A new law prevent the monopolist to price discriminate. What is his profit under this law? Are buyers better or worse off under this new law? 2 5 Q
Price Discrimination Second Degree Price Discrimination - Hurdle Model of Price Disc. The monopolist charges two prices P L and P H associated with quantity purchased Q L and Q H : Max = TR TC where TR = P H Q H + P L Q L , Q= Q L + Q H and P H = a + bQ H ; P L = a + b( Q L + Q H ) First order conditions: Solve for Q L and Q H. Substitute into the demand function to get P L and P H. 0 0 L L H H MR MC Q MR MC Q

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Price Discrimination. First-degree price discrimination: Charge different price for each different unit purchased.
Price Discrimination.

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