Same 20% discount applies internationally B/W ½ page: 97K Full page would be 196K, but is actually 178K, or about 10% off In other markets, discount is 20% 38
Do NY Times ad rates make sense? • Lower per square inch price for large units • Large ads are more disruptive to the newspaper, so arguably have “super linear costs” (e.g. a whole page is a bigger disruption, harder to fit than 2 half page ads) • Can always split a whole page into two half pages ads, so cost of half page ad is *at most*, ½ the cost of the whole, and maybe less • How can we explain this: • Values: 2 half pages more desirable than one whole page? Maybe, but maybe the opposite . • Price sensitivity: Advertisers that can afford a whole page are *more* price sensitive? Unlikely. • Market power: there are more competitors for whole page ads, so the NY Times has lower margins. Very unlikely. • Market thickness: lots of demand for half page ads, limited, but some demand for whole page ads (“too expensive”). Maybe. • It’s a mistake. Maybe. 39
Payment models: two part tarif 40 Definition: A firm charges a two part tariff if it charges a per unit fee, p, plus a lump sum fee (paid whether or not a positive number of units is consumed), F. This, effectively, charges demanders of a low quantity a different average price than demanders of a high quantity. Example: hook-up charge plus usage fee for a telephone, club membership, etc. This is a form of indirect price discrimination because it does not rely on knowledge of customer valuations or group membership.
41 100 100 Q P 10 90 4050 Example: All customers are identical and have demand • P = 100 – Q • MC = AC = 10 • What type of payment scheme makes sense?
42 What is the optimal two-part tariff? Two steps: (1) maximize the benefits to the consumers by charging p = MC = 10. (2) capture this benefit by setting F = consumer benefits = 4050. (3) Goal is to extract maximum revenue from each customer In essence, the firm maximizes the size of the "pie", then sets the lump sum fee so as to capture the entire "pie" for itself. The total surplus captured!
Two-part tarifs with multiple types Often better to charge the surplus of the lower type consumer (A) and set a higher price, In general, prices will be shaded up from marginal cost because the entry fee will not equal “high types” surplus (I can now raise price on them a bit) Figure source: Wikipedia 43
Examples of two-part tarifs Phone contracts • Monthly fee + usage charges (some included usage for “free” as well) Cover charges • Fee to get in + prices to drink/eat Clubs • Membership fee + usage fee (e.g. per visit, to play golf, etc.), also used for rentals, e.g. Zipcar • May allow options with no membership, e.g. daily use, to appeal to travelers or causal users 44
Timing Price sensitive customers wait for a good deal 45
Timing Not all products show this much variation.
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