Chapter12

# First degree price discrimination second degree price

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First-degree price discrimination Second-degree price discrimination. Third-degree price discrimination. Degree = ability to identify consumers.

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Price Discrimination. Third Degree Price Discrimination: Low ability to distinguish consumers. Consumers are divided in groups/markets. Charge different prices across groups/markets. For each group, it is still a single price.
Price Discrimination Third Degree Price Discrimination. Exercise: A monopolist faces two market segments each with a well defined demand function. Demand in market 1 is P = 10 Q 1 Demand in market 2 is P = 20 Q 2 Total Cost = If the monopolist exercises his monopoly power to price discriminate in the two market, what are the prices and quantity he charges in each market? What is his profit? If the monopolist cannot price discriminate, what is the market price and quantity? What is his profit in this case? 1 1 2 2 2 0 0 5 MR MC Q MR MC Q Q 2 5 Q

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Price Discrimination Third Degree Price Discrimination Steps to solve the monopolist’s problem. Max = TR TC where TR = TR 1 + TR 2 andQ= Q 1 + Q 2 First order conditions: Solve for Q 1 and Q 2. Substitute into the demand function to get P 1 and P 2.
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