Price discrimination

Question 1

What is nonuniform pricing?

Answer 1

Where prices vary across consumers

Question 2

What are examples of price discrimination?

Answer 2

• Domestic/international uni tuition
• Passenger airline tickets
• Senior citizen/student discounts
• Pharmaceutical products

Question 3

What is price discrimination?

Answer 3

When different consumers pay a different average price without being justified by cost differences

Question 4

A firm engages in price discrimination by charging consumers different prices for the same good based on:

Answer 4

• Individual characteristics
• Belonging to an identifiable sub group of consumers
• The quantity purchased

Question 5

What are two reasons firms earn higher profit from price discrimination?

Answer 5

• Firms can charge higher prices to consumers willing to pay

- Firms can charge lower prices to consumers willing to pay less

Question 6

What are conditions for price discrimination?

Answer 6

• Firm must have price discrimination
• Firm must be able to identify which consumers have a higher reservation price
• Firms must be able to limit resale

Question 7

What is a consumer’s reservation price?

Answer 7

The maximum amount a consumer is willing to pay

Question 8

What is often the biggest obstacle to succesful price discrimination?

Answer 8

Inability to prevent resale

Question 9

Resale is difficult or impossible when:

Answer 9

Transaction costs are high

Question 10

What are some examples of services where resale is impossible

Answer 10

• Haircuts
• Plumbing services
• Admission that requires ID

Question 11

Is all differential pricing price discrimination?

Answer 11

No

Question 12

It is not price discrimination if different prices reflect:

Answer 12

Difference in costs

Question 13

What is deadweight loss?

Answer 13

The amount of welfare generated by the economy but cannot be allocated to any agent, producer or consumer

Question 14

What are the three types of price discrimination?

Answer 14

• Personalised pricing (1st degree)
• Group pricing (3rd degree)
• Menu pricing (second degree)

Question 15

What is first degree price discrimination?

Answer 15

Each unit sold for consumer’s reservation price

Question 16

What is second degree price discrimination?

Answer 16

Firms charge different prices based on quantity

Question 17

What is third degree price discrimination?

Answer 17

Firms charge different groups of customers different prices

Question 18

Under perfect price discrimination, the firm charges each consumer a price exactly equal to:

Answer 18

The maximum they’re willing to pay

Question 19

Under perfect price discrimination, each consumer gets zero:

Answer 19

Consumer surplus

Question 20

Under perfect price discrmination, all consumer surplus is transferred:

Answer 20

Into firm profit

Question 21

Revise lecture 2 slide 16

Answer 21

x

Question 22

The result of producing at perfect price discrimination level means that the:

Answer 22

Competitive quantity of output gets produced

Question 23

What are some positive differences between PD markets and competition?

Answer 23

• More output produced

- CS is greater

Question 24

What’s a benefit to certain consumers of price discrimination?

Answer 24

It gives access to the good to consumers who otherwise it would not

Question 25

What is involved in a block pricing schedule?

Answer 25

Firms charge one price for the first few units, then a different price for subsequent blocks

Question 26

What is a tie in sale?

Answer 26

When a customer can buy one product only if they agree to purchase another product as well

Question 27

What is a monopolist’s net profit?

Answer 27

Gross profit - cost of advertising

Question 28

When market segmentation happens, Customers in low demand segments:

Answer 28

Gain

Question 29

When market segmentation happens, customers in high demand segments:

Answer 29

Gain or lose

Question 30

When market segmentation happens, firm’s profits are:

Answer 30

Highers