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Flashcards in Price discrimination Deck (16)
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1
Q

What is price discrimination

A

charging consumers different prices for same good

2
Q

Examples of price discrimination

A

Train tickets
Student discounts
Quantity discount - lower price if you buy more

3
Q

Not all price differences are price discrimination

A

may be due to cost difference e.g. paper version vs online subscription

4
Q

Reasons why price discrimination earns higher profit

A

charge higher prices to customers who are willing to pay more
Sell to people who are not willing to pay as much as uniform price

5
Q

Conditions for price discrimination

A

Market power
Identify consumers reservation price - max they are willing to pay
Prevent or limit resale (arbitrage)

6
Q

1st degree price discrimination

A

Perfect price discrimination. Individual price for each unit purchased by each buyer. Firm charges max price consumer is willing to pay. 0 CS. Firms profit increased by amount of CS that would exist in a competitive market. Produces where D=MC so competitive output produced. Maximises total welfare. No DWL.

7
Q

3rd degree price discrimination

A

Multimarket price discrimination. Different prices per group based on elasticities.

8
Q

2nd degree price discrimination

A

Quantity discrimination. Price varies with quantity purchased but each customer faces same pricing schedule. Not all quantity discounts are price discrimination some reflect reductions in firm costs with large sales. Block pricing schedules - charge one price for first few units of usage and then a different price.

9
Q

See previous graph for 2nd answer

A
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14
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15
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16
Q

2 part tariff

A

firm charges a lump sum fee for the right to purchase and a per unit fee for each unit actually purchased. Basically an access and usage fee.