Chapter 3 and so on - Economics Part Flashcards
Explain every type of price discrmination*
Ø First-degree (personalised pricing): sell to each user at a
different price;
Ø Second-degree (versioning): offer a product line and let
users choose the version of the product most appropriate
for them;
Ø Third-degree (group pricing): set different prices for
different groups of consumers, as in student discounts.
How is versioning (second-degree price discrimination) defined in the context of information goods?***
Versioning is offering different versions of a product at various prices to target different market segments, allowing consumers to self-select based on their WTP.
How does price elasticity influence third-degree price discrimination?
Price elasticity affects third-degree price discrimination by enabling companies to charge higher prices to less price-sensitive groups
Why is marginal cost (MC) pricing not suitable for information goods? What indicator is more suitable?
Marginal cost pricing is unsuitable for information goods because the cost of producing additional units is near zero.
Value-based pricing is more appropiate.
What is the “winner’s curse” in auctions and how is it related to price discrimination?
The winner’s curse refers to the tendency of winning bidders in an auction to overpay, which can complicate price discrimination strategies.
How does bundling benefit the sale of information goods according to Varian?
Bundling is beneficial because the marginal cost of adding extra goods to a bundle is low, making it profitable to offer bundles at a discount.
How can degrading the quality of lower-end versions and lowing price of high-end product can prevent market cannibalization?
Degrading the quality of lower-end versions reduces their attractiveness to higher-end customers, preventing cannibalization of premium products.
What’s cannibalisation?
In the context of the PDF, cannibalisation refers to the negative effect that occurs when a company’s new product or lower-end version eats into the sales or market share of its existing, higher-end product. Essentially, instead of attracting new customers, the cheaper or newer product takes away customers who would have otherwise bought the more expensive or original version.
This is a concern in versioning and pricing strategies, where companies must balance creating multiple versions without losing the profitability of premium products.
What is segmentation of the versions? What problem could happen if segmentation fails?
Segmentation refers to the strategy of dividing the market into distinct groups of consumers based on specific characteristics.
The problem could occur if low-end versions attracts high-end customers!
En una grafica lineal con pendiente positiva, que relacion tiene la WTP con la cantidad.
WTP = VERT
QUALITY = HORZ
Correlación positiva, ya que al aumentar una, aumenta la otra
What is bundling? And customized bundling? And tying?***
bundling refers to the practice of selling two or more distinct goods together as a single package for a single price (renta para los i.g. porque su cMg=0).
Customized bundling goes a step further by allowing customers to select the specific combination of goods they want within the bundle
Tying is an example of youtube or google maps tied to android (explain it with my words)
What are the 4 reasons (or justifications) for doing bundling?***
Certainly:
- Cost Reduction: Bundling reduces production and administrative costs, especially for Information goods.
- Benefits of Integration: Integrating products improves compatibility and user experience.
- Price Discrimination: Bundling helps companies to adapt prices by averaging out differences in customers’ WTP.
- Entry Deterrence: Bundling discourages competitors by capturing customers who prefer a comprehensive package over individual products.
What are network externalities? Which types are there? How would you differentiate this concept regarding others in the exam?***
- Network externalities are positive consumption externalities
that occur (strongest) for particular consumption goods - They could be either direct or indirect: The direct type gets affected by consumers positively, whereas the indirect gets affected by another products (e.g. better hardware quality = more macs sold = more utility of hardware)
- NETWORK EXTERNALITIES GET AFFECTED BY OTHER ECONOMIC AGENTS LIKE METAVERSE, AI, OTHER COMPANIES, CONSUMERS…
Which types of lock-in costs are there? May you briefly put an example on each type?***
1) Contractual commitment: Switching costs will damage the contract.—>London office 18-month leasing that Meta broke
2) Durable purchases: Switching costs will lead to replace the equipment and purchasing complementary products.—>Apple’s smart home program (Alexa’s version) / PS5 vs XBOX…
3) Brand-specific training: Switching costs will lead to learn a new system you’ve never been used to work with.—>Keyboards dvorak, qwertz…
4) Information and Databases: Switching costs will make you to convert all data to the new format.—>Spotify vs Apple Music (u dont pay complementary things but u have to get used to it) AND PASSWORD INFO THAT THE ENTERPRISE MADE CUSTOMERS PAY $36.
5) Specialized Suppliers: Switching costs will enforce you to make initial and later purchases.—>Dependence of Samsung to Android Apps (AVOID DUAL SOURCING)
6) Search Costs: Switching costs means that you’re going to invest time, effort and it will lead to psychological costs of changing those habits.
7) Loyalty Programmes: Switching costs will mean to lose benefits from the current supplier.—>Dinegui yendose de AD.
