L6: Price Discrimination

Question 1

second degree price discrimination

Answer 1

firms cannot target consumers directly
- but they know what types exist among consumers
- types determine WTP

alternative is to provide menus which pair amount or quality of a good with price
- work as two-part tariffs

key is to design a menu that induces correct self-selection to maximise monopolist profits

Question 2

two-part tariff conditions

Answer 2

individual rationality
- consumers have to prefer terms meant for their group over not buying at all
- utility from consuming the menu has to be greater than 0 (value of not buying anything)

incentive compatibility
- consumers prefer terms meant for their group over those for the other group

Question 3

bundling

Answer 3

pure: several products sold in a package with no separate purchase available

mixed: alongside each separately priced product, a package of more than one product is sold at a discount relative to the components
- packaged product is discounted relative to buying separate things

Question 4

pure bundling

Answer 4

more profitable when there is negative correlation of demand
- customers who like one good the best are those who dislike the other good the most

Question 5

mixed bundling

Answer 5

trying to extract maximum rent
- consumers self-select into the bundle that works best for them and you get more surplus

Question 6

other pricing schemes

Answer 6

coupons
- buyers with low valuation value time less so put more effort into coupons

intertemporal price discrimination
- dynamic pricing and discounts for people

complementary product pricing
- reducing one product’s pricing increases demand for both goods