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Industrial Organization PPT Lecture
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  Lecture 9: Price Discrimination EC 105. Industrial Organization. Fall 2011 Matt ShumHSS, California Institute of Technology September 9, 2011 EC 105. Industrial Organization. Fall 2011 ( Matt Shum HSS, California Institute of Technology)   Lecture 9: Price Discrimination September 9, 2011 1 / 23  Outline Outline 1  Perfect price discrimination 2  Third-degree price discrimination: “pricing-to-market” 3  Second-degree price discrimination 4  Bundling 5  Durable goods and secondary markets 6  Pharmaceutical pricing after patent expiration EC 105. Industrial Organization. Fall 2011 ( Matt Shum HSS, California Institute of Technology)   Lecture 9: Price Discrimination September 9, 2011 2 / 23  Outline Price discrimination Up to now, consider situations where each firm sets one uniform priceConsider cases where firm engages in non-uniform pricing: 1 Charging customers different prices for the same product (airline tickets) 2 Charging customers a price depending on the quantity purchased (electricity,telephone service) Consider three types of price discrimination: 1 Perfect price discrimination: charging each consumer a different price. Ofteninfeasible. 2 Third-degree price discrimination: charging different prices to different  groups  of customers 3 Second-degree price discrimination: each customer pays her own price,depending on characteristics of purchase (bundling) Throughout, consider just monopoly firm. EC 105. Industrial Organization. Fall 2011 ( Matt Shum HSS, California Institute of Technology)   Lecture 9: Price Discrimination September 9, 2011 3 / 23  Perfect price discrimination Perfect price discrimination (PPD) 1 Graph.Monopolist sells product with downward-sloping demand curveEach consumer demands one unit: demand curve graphs number of consumers against their willingness-to-pay for the product.Perfect price discrimination: charge each consumer her WTPPerfectly discriminating monopolist produces  more  than “regular”monopolist: both produce at  q   where  MC  ( q  ) =  MR  ( q  ), but for PDmonopolist  MR  ( q  ) =  p  ( q  ). PD monopolist produces at perfectly competitiveoutcome where  p  ( q  ) =  MC  ( q  )!Perfectlly discriminating monopolist makes much higher profits (takes awayall of the consumer surplus) EC 105. Industrial Organization. Fall 2011 ( Matt Shum HSS, California Institute of Technology)   Lecture 9: Price Discrimination September 9, 2011 4 / 23
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