Exam Final Flashcards
(42 cards)
What is 1st degree price discrimination / perfect price discrimination
-Price that correspond as closely as the customers valuation
-The firm captures the entire customer surplus
-Ex: Auctions, flea market, garage sells, car dealers…
What is 3rd degree price discrimination / explicit market segmentation
-Customers can be differentiated with observable characteristics
-Groups of consumers
-Students/Eldery discounts, insurers…
The optimal discriminant tragedy (3rd) is to charge a higher price in the market segment with the ___ elasticity of demand
Lowest
(Consumers less sensitive to a price change)
The optimal strategy is to charge a lower price to the market segment with the ___ elasticity of demand.
Highest
(Consumers who are more sensitive to a change in price)
What is 2nd degree price discrimination / implicit market segmentation
Charging different prices depending on non-observable characteristics
Segmentation is obtained through the choices consumers make
Ex: Phone plans, airplane tickets, Netflix subscription (ya plusieurs forfaits)
What is a two part tarif ?
The price is composed with the Lump-Sum fee (Set the lump-sum fee equal to the CS when he buys the
optimal number of good at the per-unit price) and the Per-Unit Price (Set the per-unit price equal to the MC)
Ex: Costco (membership + sales)
Tying allows the firm to …
capture a larger portion of the consumer surplus. Sold by the same firm only.
(Ex: Printer and ink, Nespresso…)
Bundling consists in…
selling a bundle of goods and services at a lower price that the consumer would pay by buying all goods individually.
Bundling allows the firm to…
charge a high price to consumers with a high valuation for some goods and to propose lower prices to consumers who are ready to buy all goods but at a lower average price.
Ex: Microsoft, skincare bundle…)
Risk averse people are …
Unwilling to expose themselves to risk unless he expected payoff is large enough.
Risk neutral people only care about…
The expected pay off.
Risk seeking people only enjoy risk, to the point of…
Being willing to accept a lower payoff in order to face risk.
Will a risk seeker buy insurance?
The risk attitude is not enough to answer.
What is the insurance premium?
The fee you pay to buy insurance.
Insurance companies usually charge premiums that are …
Above the actuarially fair premium (actuarially fair premium is equal to the expected loss).
The maximum premium that a risk neutral individual will be willing to pay is equal to…
The expected loss
A risk averse person is willing to pay ___ than the expected loss. (Insurance)
More
A risk seeker is willing to pay ___ than the expect loss. (insurance)
Less
____ is the strategy maximizing the payoff of a player, given the strategies of the other players.
Best response
___ is a strategy considered dominant if it yields a higher payoff than any other strategy against all possible strategies chosen by other players.
Dominant strategy
___ is a situation where each player is playing his best response against the other player’s strategy. No single player is better off deviating unilaterally.
Nash equilibrium
True or false : The Nash Equilibrium = best outcome for both parties
False.
True or false : The Nash Equilibrium = best outcome for both parties
False.
What are the main characteristics of an oligopoly
-Small number of firms
-Strategic interactions between firms: Firms consider how the actions of other firms affect their own actions (game theory).
-Barriers to entry
-Cost advantages (economies of scale seen in monopoly)
Ex: Airlines
