chapter 9- price taking strategies

Question 1

what is price discrimination

Answer 1

refers to the
practice of charging different prices to different
consumers for the same product.
▪ To maximize profit, a firm sets a higher price
for consumers who are willing to pay more and
a lower price for consumers who are willing to
pay less.

Question 2

in order for price discrimination to happen, the market must..

Answer 2

1. have market power
2. have to eb able to monitor the customers purchases
3. prevent resale

Question 3

when can first degree price discrimination be used

Answer 3

1. A firm has market power and the ability to prevent resale.
2. A firm has complete information about each buyer’s reservation
   price for the product. The reservation price (r) is the price that
   the buyer is willing to pay for each unit of the product

CS BECOMES PS

Question 4

what are the characteristics of second degree price discrimination

Answer 4

1. The firm has market power and the ability to prevent
   resale.
2. The firm cannot determine the exact reservation price
   of each buyer.
3. The firm cannot directly identify customers into
   groups prior to purchase.

Question 5

what is two part pricing

Answer 5

a variant of second degree price disvirminatin
involves entry fee and per unit for the product purchased. ex: cosco

Question 6

two scenarios of twi part pricing

Answer 6

same customers and different customers

Question 7

what are the characteristics of third degree price discrimination

Answer 7

The firm has market power and the ability to prevent
resale.
2. The firm cannot determine the exact reservation price
of each buyer.
3. The firm can classify buyers into groups based on
their price sensitivity, which is reflected in their price
elasticity of demand.
4. The firm then sets different prices for each group,
with the more price-sensitive groups paying lower
prices and the less price-sensitive groups paying
higher prices.

COUPONS AND REBATES–> USES ELASTICITY

Question 8

what is peak load strategy

Answer 8

nvolves charging
different prices for a product or service depending on
the time of day or season.
higher prices during higher demand and rise versa

Question 9

what are the assumptions of the transfer pricing model

Answer 9

1. upstream/ downstream
   2.no external markets

Pricing strategy for a vertically
integrated firm.

Question 10

what Is the bundling strategy

Answer 10

The bundling strategy is a pricing technique used by a
firm that involves selling multiple goods at a single price
in order to increase profits.
* The profitability of bundling depends on the reservation
price of the customers, which is the price at which they
are willing to make a purchase.

HAVE TO HAVE A NEG CORRELATION