lecture 10 Flashcards
price discrimination
treating people differently and charging differentl for the same thing
types of price discrimination
first degree, third degree and second degree
first degree (perfect price determination)
charging consumers the maximum each is willing to pay
- difficult to establish the maximum people are willing to pay
-asymmetric information
personalised or person specific pricing
- approaches pure first degree price discrimination
-more likely when there is scope for bargaining and the seller is a skilful haggler
third degree
characteristics, traits, or attributes used to ‘group’ different consumers, aka student discount
firms discriminates according to some consumer characteristics - age or location
characteristics must be:
-RELATIVELY EASY FOR THE FIRM TO OBSERVE
-provide some info about the consumers willingness to pay
-are not illegal to use (discrimination by ethnicity or gender)
- acceptable for the consumer
should be impossible or costly forconsumers to change characteristics
second degree
offering a range of different pricing options for the consumers to choose from
discount for greater purchases
-quanityt discounts
-blocks declining tariff (eg electricity companies)
coupons/vouchers - timer and effort
intertemporal pricing - airline tickets
versioning - different versions of core products aka first class vs economy seats
different specifications of computers/software
combinations of versioning and inter-temporal pricing
- hardback and paperback books
Which one of the follwing conditions is NOT neccessary for the 3 degree price discrimination to take place?
the firm must be a monopoly
in which stage is it likely yhat prie competition is intense and firms invest in product innovation to stimulate growth in sales?
maturity
the nature of products life cycles
launch
growth
maturity
decline
other discirminatory pricing practices
peak loading pricing
-higher bus and trai fares during ‘rush hours’
two-part tariff
-fixed fee plus price per unit
=mobile phones/energy
price discrimination, if possible allows a firm with marketr power to increase its profits by charging different prices
that reflect the different willingness to pay of each consumer
conditions for price discrimination
firms must have some market power
- faces a downward sloping demand curve
re-sale of the product between customers must be difficult or impossible
consumed at time of purschase/perishable/high transaction costs
demand elasticity must vary between customers at any given price
if a supermarket has a buy 2 get 3rd one for free, this is
second defree price discrimination
firms producing a range of products
interrelaed demand
-drawbacks of independent pricing
-full range pricing
-loss leaders
Some firms provide coupons and vouchers on their websites. any customer can print off these vouchers and use them to obtain their next purchase from the firm at a discounted price; this i s most likely to be an example of
second degree price discrimination
