Flashcards in Price Discrimination (Start) 1st/ 3rd Deck (8)
Definition of Price Discrimination/Differentiation
Occurs when two or more similar goods are sold at different prices to MC. It is not necessarily a bad thing.
Different prices within a firm (train tickets)
Different prices at different firms (e.g. resellers).
Different prices on different channels (Online search engine).
First Degree (Very rare) - Personalised Pricing
Each consumer is charged their maximum willingness to pay for the good/unit of the good.
Online Sales - They can collect information on your identity and personalize pricing.
(Non Linear Pricing) or Self Selection pricing.
- Prices differ according (for example) to the number of units bought, but each consumer faces the same schedule (or menu of prices) [ usually extended to menu choices].
Group Pricing - Different purchasers are charged different prices, but each purchaser pays a constant amount per unit.
Conditions for Price Discrimination
The firm must have some market power ( but need not be a monopolist).
Willingness to pay must vary across units of consumers and there must be a way to capture this, at least imperfectly.
Resale Opportunities must be very limited * so particularly suits services), at least in the case of 1st and 3rd degree.
Mechanisms for capturing surplus that are essentially price discrimination.
- Market Segmentation (eg. geographic).
- Two-part pricing (e.g. membership fee).
- Non - linear pricing (e.g. 3 for price of 2).
- Tying and bundling (.e.g mobile phone).
- Quality Discrimination (E.g. classes of travel, theatre seats.
First Degree Price Discrimination
Lump sum fixed fee plus marginal cost charge will capture all surplus.
- Personalised Pricing and the value of information.
Producer surplus - integral under the triangle or