Pricing Strategies For Firms With Market Power

Question 1

How can a monopoly with sufficient information capture the entire consumer surplus

Answer 1

By price discrimination, charging all a consumer is willing to pay

Question 2

What is direct price discrimination

Answer 2

Charging different rates based on observable characteristsics

Question 3

What is perfect or first degree price discrimination

Answer 3

When the producer knows and charges the maximum amount a customer is willing to pay

Question 4

What is second degree price discrimination

Answer 4

When a firm sells products in differently priced bundles aimed at different types of customers with differing willingness to pay

Question 5

What is segmenting or third degree price discrimination

Answer 5

To identify at least two groups with different demand curves you can charge them differently if you can keep them separate. It can be done through space and time separation or offers made directly to certain parties

Question 6

Give some examples of second degree price discrimination

Answer 6

Quantity discounts, selling different versions

Question 7

How can second degree price discrimination be incentive compatible

Answer 7

By including offers that makes the consumers want to take the offer ment for them like if only something essential for enterprise customers is included in a bundle

Question 8

What is mixed bundeling

Answer 8

Offering a bundle with some under performing goods at a discount

Question 9

What is block pricing

Answer 9

A discount for buying extra quantity. Aka quantity discounts

Question 10

What is a two part tariff

Answer 10

When a consumer needs to pay a sum up front for additional purcheses

Question 11

What are the two types of direct price discrimination

Answer 11

First and third degree

Question 12

What is the difference between block pricing and quantity discounts

Answer 12

Quantity discounts is just a discount when a quantity is reached but a block price keeps on falling

Question 13

What is pure bundling

Answer 13

When a firm offers products only as a part of a bundle

Question 14

What are the two parts in the two part tariff called

Answer 14

Per unit price and fixed fee

Question 15

When to use block pricing and two part terrifs

Answer 15

When market power and resale prevented. Customers can have different or identical demand curves

Question 16

When to use bundeling

Answer 16

Market power and resale prevented. You sell two product and demand for one is negatively correlated with the other

Question 17

When to use indirect price discrimination

Answer 17

Market power and resale prevented. Customers have different demand curves. Firm cannot directly identify customers demand curve

Question 18

When to use segmenting

Answer 18

Market power and resale prevented. Demand curves differ. Groups with similar curves can be identified

Question 19

When to use perfect price discriminagion

Answer 19

When power and prevent resale. Differing demand curves that can be directly identified

Question 20

How large is the fixed fee and the variable price in the two part terrif

Answer 20

The strategy is maximized when the fee is as large as consumer surplus and the price there after is as large as marginal costs. Thus the entire cs is captured