Business travelers pay more for tickets conditions

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* Business travelers pay more for tickets. * Conditions imposed by airlines yield other benefi ts, such as the ability to schedule more accurately well in advance and to charge ticket-holders to reschedule. ÿ New business models have reduced the ability of airlines to engage in price discrimination. * Internet ticket sales provide more information and flexibility to buyers. * There is a time cost to searching the Internet for low prices, and online information may not always be accurate. * Priceline.com, an Internet company that lets customers bid on tickets, facilitates fi rst-degree price discrimination.
Managerial Use of Price Discrimination | 139 STRATEGY SESSION: Mickey Mouse Pricing at Amusement Parks Discussion Question 1. Describe why this might be a revenue-enhancing third-degree price dis- crimination strategy in which customers self-select among the three mar- ket segments. How do you think the price elasticities of demand differ among the segments? STRATEGY SESSION: Yield Management and Airline Performance Discussion Questions 1. Summarize, in your own words, the key components of yield management. 2. Is yield management a viable pricing strategy under perfect competition? Explain. PROBLEM SOLVED: Third-Degree Price Discrimination Discussion Questions 1. Suppose that, because of a decline in the value of the dollar relative to the euro, the demand curve for the drug in Europe shifts to P E 20 0.5Q. How many units should the drug manufacturer sell in Europe and the United States, and what prices should be charged? Answer: MR E 20 Q E 2 MC Q E 18 and P E 11. Q U and P U are unchanged. 2. Suppose that, because of a decline in the value of the euro relative to the dollar, the demand curve for the drug in the United States shifts to P U 40 Q U . How many units should the drug manufacturer sell in Europe and the United States, and what prices should be charged? Answer: MR U 40 2 Q U 2 MC Q U 19 and P U 21. Q E and P E are unchanged. 4. Using Coupons and Rebates for Price Discrimination Coupons and rebates are used to segment a market. ÿ People who use coupons or send in rebates are likely to have more elastic demand than those who do not. ÿ Coupons and rebates lead people to self-select their market segment. ÿ These devices reduce the price of products. ÿ Not all consumers use coupons.
140 | Chapter 9 ÿ Managers use coupons and rebates to price discriminate because other consumers are willing to pay more—that is, to buy the good without a coupon. Example: Pricing strategy Managers at the fish company choose a posted price ( P ), but then issue a coupon for $X off in the newspaper local to the consumer types. Question: What should the value of P and X be? To maximize profi t, the MR in each market should be equal, and they should be, in turn, equal to the MC of the company.

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