Price Discrimination

Question 1

Price discriminatuion

Answer 1

Firm charging diff prices to diff customers for smae product
Depends on ability and willingness to pay

Question 2

Is price discrimination bad plan

Answer 2

Loa- depends for whom
Yes- segmentation- for certain groups- third and second degree
No- social benefits, use of monopoly profit

Question 3

Price discirimnation bad- social benefits

Answer 3

Certain groups may benefit- oap and students- hair cut cheaper prices and musuem tickets
Brings new customers into the market- students- 3rd degree (diagram)
Social benefit- lower income countries cheaper= cross subsidy of activities- ie drugs
Bulk buy- second degree

But- eliminate consumer surplus bby increasing prices, hgher than mc

Question 4

Use of monopoly profit- price discrimitaion

Answer 4

R and d new train lines and updates- finance high cost rail in certain areas which may be less financially rewarding

But reinforces barriers to entry- buy key area-s trains
Money for advertising- sunk costs

Question 5

Segmentation/for certain groups= price discrimination bad

Answer 5

Increased cost commuters- peak times- to second degree- diagram-
Geographic corner shop cots more than supermakrt
Increasingly use of technology and ocokers= if look lots of times- expedia
But minial consumeer suprlys means better use of spare cpaacity- environment- lwoer prices off peak trains

Question 6

1st degree price discrimination

Answer 6

Changing diff prices for each individ unit pruchasedm- each individ willing to pay
Consumer suprlys transfer to producer
Cookies- technology- personalised prices

Question 7

2nd degree price discrimination

Answer 7

Prices vary by q sold, bulk pruchase disocunts
More than one group of consumer in market and firm able to charge depending on q demanded (just downward sloping line)

Prices vary time of purchase- peak times
Exponential graph, off peak demand low, low prices to maximise
Uber engages in surge pricing- dynamic prices, when demand exceeds supply uber increases prifces aim ist to entice mroe rivers out
Take advantage low ped, inelastic at busy times

Question 8

Perfect price discrimination

Answer 8

No consumer suprlus, asll consume rsurplus is transferred to producer

Question 9

Third degree price discrimination

Answer 9

Charge diff price to diff groups of people- segmentation, depends on ped
Diff from 2nd degree as based on market segments not q demanded
Constant line elastic and inelastic bit

Question 10

Ain aims of price discrimination

Answer 10

Extra rev- providing extra units of gands can be sold for a price above mc of supply
Higher profit- spare cpacity last minute deals to use up
Improved cash flow- price discrimination may be required in some indsurties to generate cash in advance to sustanoperations

Question 11

Conditions for price discrimination

Answer 11

Firms must have sufficient monoply market power- price maker not taker
Identify diff market segrments- groups with doff ped
Ability t oseperate these diff groups
Ability to prevent resali- limit sales, age restrictions, id cards

Question 12

Pricing for concert ticjets

Answer 12

2022 onlne ticket retailer introduced dynamic pricing= reacted to observed demand- ticketmaster
Operate as monopoly

Question 13

Why is dynamic pricingg desirable

Answer 13

When retailer sells tickets at fixed price doesn’ t know with cetrianity wha tthe ture demand for the tickets will be- hence marginal revenue- as a result dont know what profit max price set
Can make demand equal to supply
Quantity restricted not by intersectioin of mr=mc but by capacity of venue

Question 14

Dysnamic pricing takes advantage of of what time consumer

Answer 14

Risk averse willing pay more to avoid disappointment not able to attend concert
First degree price discrimintation- charge each consumer max wilingenss to pay

Question 15

Other forms of price discrimination

Answer 15

Lots firms offeer student discounts- recognition students often dot have same amount disposable income
Tickets not sold out, lower price

Question 16

Price discrimination is always beneficiiial for firms who exploit

Answer 16

Intro- price descrim defin, ami to increase revenue ad profits
3rd degree- segmentation
3rd degree- elimimnate excess demand
2nd degree

Question 17

3rd degree- segmentation- beneficial for those exploit

Answer 17

Segment diff groups wihth diff peds identified
Charged diff prices
Can be used to inrtoduce more to market- eg young and old people- lower incomes, higher income elastciiayy of demand, price mroe then more than proportiuonal decrease demand
Tehatures on west end rev maximised and markets expanded

Question 18

3rd degree segmentation- not beneficial firms

Answer 18

Fixed cost in theatre may decrease rev decrease profit- consider balance
Elastcia and inelastic graphs
This diff rve seen though- inelastic want to cont as charge higehr prices

Question 19

1st degree eleiminate excess demand- beneficial firms exploit

Answer 19

Surge pricing
Ticketmaster taylor swift 2018 surge pricing increase prices as increae demand- utilising risk averse customers who became mroe price elastic in demand to avoid dissapointment not byuying ticket
Excess demand fell as firms exploit individ elastic ped
Surge pricing efefctive- firm needs mosnopsony power- ticketmaster (after merging with live nation in 2010), and uber
Otherwise consumers would go elsewhere limiting extet to which price discrimination adopted across all firms
Agressive price discrim excessive and regresisve prices damage reputation- yet monospony power has seen iniamdl impactof potentch boycotting of firm

Question 20

2nd degree price discrimination beneficial firm

Answer 20

Prices may vary as to q demanded- exploits willing to pay
Ge inivid v multipack choc
Spread fixed cost of prodution across quantity
Aim most firms to maximise where mc=mr, lowering costs, consuemrs incentivisd purchase lagre at lower price bette value for rfmomney
Profits can be reinvested rd furher lowering cost production and increae comp
Utilise capacity and econ of scale enabled as price and revenue increase
Draw graph doownward sloping with numbers on axis for q and price