Lecture 6A - Game theory and price discrimination

Question 1

How do you work out the Nash equilibrium of a game in game theory?

Answer 1

Work out the different routes each firm/person would take and see which one is best for both

Question 2

What is first degree price discrimination?

Answer 2

This is when you charge the consumer their max willingness to pay. This is rare e.g haggling in shops

Question 3

What is second degree price discrimination?

Answer 3

-All customers are offered a range of prices for the same product e.g BOGOF and the time of of year u book plane tickets

Question 4

What is third degree price discrimination?

Answer 4

This is the most common and it is when all customers are offered a range of prices depending on their common traits e.g age, gender

Question 5

Adv to firm of price discrimination?

Answer 5

• Predatory pricing can be used to drive competitors out the market
• allows firms to earn a higher revenue