Session 3.2

Question 1

3 ways of Differential Pricing

Answer 1

● Personalised pricing
○ first-degree

● Versioning/bundling
○ second-degree

● Group pricing
○ third-degree

Question 2

Personalised pricing

Answer 2

Imagine a producer knows the reservation price of every consumer and can offer that price to each consumers

• ideal scenario for a producers, everyone pays their maximum willingness to pay
• Here, monopoly profit equals the hole area under the demand curve

Question 3

Personalised pricing: Traditional Market examples

Answer 3

• Airlines and yield management
• Direct mail and catalog
• Supermarket scanners
• Promotional pricing: sales, coupons, rebates
• Auction

Question 4

Personalised pricing: New techniques on the internet

Answer 4

• eBay, priceline

Question 5

Group pricing

Answer 5

• Instead of setting one price, a seller could segment their consumer base and sell for two different prices.
• The seller can use natural market segmentation that are stable and can be controlled (e.g. students vs non-student)
• Same product, multiple prices
• Segmentation based on different group willingness to pay ( price sensitivity)
• Require robust and verifiable groups

Question 6

Group Pricing. At the end of the day, the monopolist…

Answer 6

earns more when segmenting the market and conducting group-based pricing than when serving the whole market with one price.

Question 7

Free user contributions?

What motivate the free production?

Answer 7

Open source software development communities, open content production, content sharing networks.

What motivate the free production? altruism, utility, moral satisfaction, joy of giving

Question 8

• The sales of consumer durables in one period decreases the demand for this good in the next period.
• The demand decreases, so prices have to decrease as well.

Answer 8

Coase Conjecture