eaton micro 6e ch14
TRANSCRIPT
-
7/27/2019 Eaton Micro 6e Ch14
1/21
2005 Pearson Education Canada Inc .14.1
Chapter 14
Price Discrimination andMonopoly Practices
-
7/27/2019 Eaton Micro 6e Ch14
2/21
2005 Pearson Education Canada Inc .14.2
Figure 14.1 The simple monopoly problem
-
7/27/2019 Eaton Micro 6e Ch14
3/21
2005 Pearson Education Canada Inc .14.3
Price Discrimination andMarket Segmentation
All price discrimination schemesshare an underlying strategy tosegment the market and to chargeeach segment a different pricerelative to its cost.The monopolists goal is to turnconsumer surplus into revenue.
-
7/27/2019 Eaton Micro 6e Ch14
4/21
2005 Pearson Education Canada Inc .14.4
Price Discrimination
Categories of price discrimination :1. Perfect Price discrimination -successfully extracting
the maximum possible profit from each customer and therefore the whole market.
2. Ordinary Price Discrimination- identification of potential customer groups, charging each group aseparate price.
3. Multipart Pricing -charging different rates for differentamounts (blocks) of a good or service.
-
7/27/2019 Eaton Micro 6e Ch14
5/21
2005 Pearson Education Canada Inc .14.5
Figure 14.2 The perfect price-discriminating monopolist
-
7/27/2019 Eaton Micro 6e Ch14
6/21
2005 Pearson Education Canada Inc .14.6
Price Discrimination
To maximize revenue from the saleof a fixed quantity of output, allocateoutput so that marginal revenue isidentical in all markets.
-
7/27/2019 Eaton Micro 6e Ch14
7/21
2005 Pearson Education Canada Inc .14.7
Figure 14.3 Price discrimination:equality of marginal revenue
-
7/27/2019 Eaton Micro 6e Ch14
8/21
2005 Pearson Education Canada Inc .14.8
Price Discrimination
A profit maximizing monopolist engagingin ordinary price discrimination willchoose an aggregate output where(aggregate)MR=MC.Output is allocated so MR is the same inall market segments.Price is higher in the market segmentwith the lower price elasticity of demand.
-
7/27/2019 Eaton Micro 6e Ch14
9/21
2005 Pearson Education Canada Inc .14.9
Figure 14.4 Price discrimination:profit maximization
-
7/27/2019 Eaton Micro 6e Ch14
10/21
2005 Pearson Education Canada Inc .14.10
Price Discrimination
Criteria For Price Discrimination:1. The market must be able to identify
different price elasticities of demand and segment the marketaccordingly.
2. Re-sale must not be possible orcost effective in order to preventarbitrage (profitable re-selling).
-
7/27/2019 Eaton Micro 6e Ch14
11/21
2005 Pearson Education Canada Inc .14.11
Price Discrimination
Methods of market segmentation:- Direct identification (seniors must
show ID to get discounts).- Self selection (advance booking on
airlines, stay a Saturday night).- Intertemporal-charging higher prices
when the good is first introduced andreducing prices through time.
-
7/27/2019 Eaton Micro 6e Ch14
12/21
2005 Pearson Education Canada Inc .14.12
Figure 14.6 Multipart pricing
-
7/27/2019 Eaton Micro 6e Ch14
13/21
2005 Pearson Education Canada Inc .14.13
Figure 14.7 Discriminatory hiring to minimize costs
-
7/27/2019 Eaton Micro 6e Ch14
14/21
2005 Pearson Education Canada Inc .14.14
Monopsonistic Price Discrimination
A profit maximizing monopsonist willchoose aggregate quantity of inputsso that aggregate marginal factorcost (MFC) equals marginal revenueproduct (MRP).Purchases will be allocated so thatMFC is identical in all input markets.
-
7/27/2019 Eaton Micro 6e Ch14
15/21
2005 Pearson Education Canada Inc .14.15
Figure 14.8 Discriminatory hiringto maximize profit
-
7/27/2019 Eaton Micro 6e Ch14
16/21
2005 Pearson Education Canada Inc .14.16
Figure 14.9 Two-part tariff pricing
-
7/27/2019 Eaton Micro 6e Ch14
17/21
2005 Pearson Education Canada Inc .14.17
Tie-In Sales
Tie-in sales are another way for a monopolist toextract surplus from its customers.A tie-in sale occurs when a firm has monopoly
over some good X, but refuses to sell it unlessyou also buy good Y, which is available in acompetitive market.With a tie-in sale, the firm lowers the price of amonopoly good and raises the price of the tiedgood
-
7/27/2019 Eaton Micro 6e Ch14
18/21
2005 Pearson Education Canada Inc .14.18
Figure14.10 Tie-in sales
-
7/27/2019 Eaton Micro 6e Ch14
19/21
2005 Pearson Education Canada Inc .14.19
All-or-Nothing Demands and theExploitation Effect
An ordinary demand curve shows themarginal value of a given quantity.An all-or-nothing demand curveshows the average value of a givenquantity.When a consumer pays the average
value for a good, rather than themarginal value, then the consumersurplus is zero.
-
7/27/2019 Eaton Micro 6e Ch14
20/21
2005 Pearson Education Canada Inc .14.20
Figure 14.11 All-or-nothing demand curve
-
7/27/2019 Eaton Micro 6e Ch14
21/21
2005 Pearson Education Canada Inc .14.21
Figure 14.12 The exploitation of affection