ch 11: Flashcards
The practice of charging
different prices to
consumers for the same
good or service.
price discrimination
Pricing strategy in which
consumers are charged
a fixed fee for the right
to purchase a product,
plus a per-unit charge for
each unit purchased.
two-part pricing
Pricing strategy in which
identical products are
packaged together in
order to enhance profits
by forcing customers
to make an all-or-none
decision to purchase.
block pricing
The practice of bundling
several different products
together and selling them
at a single “bundle price.”
commodity bundling
Pricing strategy in which
higher prices are charged
during peak hours than
during off-peak hours.
peak-load pricing
Pricing Strategies for Special Cost
and Demand Structures
peak-load pricing
cross-subsidy
transfer pricing
Extracting Surplus from Consumers
price discrimination
two-part pricing
block pricing
commodity bundling
Pricing strategy in which profits gained from the sale of one product are used to subsidize sales of a related product.
cross-subsidy
Whenever the demands for two products produced by a firm are interrelated through costs or demand, the firm may enhance profits by cross-subsidization: selling one product at or below cost and the other product above cost.
Cross-Subsidization
Pricing strategy in which a firm optimally sets the internal price at which an upstream division sells an input to a downstream division.
transfer pricing
Pricing Strategies in Markets with Intense
Price Competition
price matching
Inducing Brand Loyalty
randomized pricing
A strategy in which a firm advertises a price and a promise to match any lower price offered by a competitor.
price matching
Pricing strategy in which a firm intentionally varies its price in an attempt to “hide” price information from consumers and rivals.
randomized pricing
is the practice of posting a discrete schedule of declining prices for different ranges of quantities. This prac- tice is very common in the electric utility industry, where firms typically charge a higher rate on the first hundred kilowatt-hours of electricity used than on subsequent units.
Second-degree price discrimination
that is, charge each consumer the maximum price he or she would be willing to pay for each unit of the good purchased.
first-degree price discrimination
commonly practiced by firms that recognize that the demand for their product differs systematically across consumers in different demographic groups. In these instances, firms can profit by charging different groups of consumers differ- ent prices for the same product, a strategy referred to as
third-degree price discrimination.
For example, it is common for stores to offer “student discounts” and for hotels and restaurants to offer “senior citizen discounts.”
