séance 7 - pricing strategies Flashcards
what are the 3 conditions of price discrimination?
- some market power
- information about customers (MV)
- customers’ inability to resell product
what is the first degree of PD?
perfect price discrimination
what is the 2nd degree of PD?
implicit market discrimination
what is the 3rd degree of PD?
explicit market segmentation
what is the first condition of PD?
information
what are the characteristics of 1st degree PD?
- charging customers the max amount they are willing to pay (MV: P differs from person to person)
- firms have direct info on V & MV
- no consumer surplus (producer captures it all: still efficient in terms of total welfare)
- example: prices set by bargaining
what are the characteristics of 2nd degree PD?
- price menu
- charging different prices upon non observable characteristics: firms have info on valuation, but there are no observable characteristics
- seller’s can not directly discriminate (consumers self select the contract they prefer)
what are the characteristics of 3rd degree PD?
- charging different price to different groups of ppl
- consumers differentiated based on observable characteristics
- charging MV in the different segments composing the market
is perfect price discrimination as efficient as perfect competition?
same qty sold and same welfare, only all captured by producer while nothing is left for the consumer (from a welfare perspective, it is as efficient because all gains from trade are realised)
what can we say about the market demand curve under perfect PD? P=40-Q, for example.
market demand curve = MR curve of the firm, so we can directly compute MR=MC, 40-Q=MC
what is the most common form of PD?
the 3rd degree PD, explicit market segmentation
what can explain that there is a different price for different segments in 3rd degree PD (explicit market segmentation)?
the market is segmented according to observable characteristics and a different P is charged to the different segments because of the different price elasticities
when a segment is charged a higher price than another segment, what can we say about its price elasticity of demand?
it is less elastic; customers are somewhat captured, so the firm can charge more
a flatter demand curve indicates elasticity or inelasicity?
elasticity
how to determine how a customer will choose what contract of a price menu it will choose?
- draw the price lines
- draw the demand curve
- chooses the one that has the biggest CS
