【正文】 rice Discrimination ?Examples of imperfect price discrimination where the seller has the ability to segregate the market to some extent and charge different prices for the same product: ?Lawyers, doctors, accountants ?Car salesperson (15% profit margin) ?Colleges and universities (differences in financial aid) 169。 MR (yellow). Perfect FirstDegree Price Discrimination Quantity $/Q With perfect discrimination, firm will choose to produce Q** increasing variable profits to include purple area. Consumer surplus is the area above P* and between 0 and Q* output. Pmax D = AR MR MC Q** PC 169。2020 Pearson Education, Inc. Chapter 11 9 Price Discrimination ?If the firm can price discriminate perfectly, each consumer is charged exactly what they are willing to pay ?MR curve is no longer part of output decision ?Incremental revenue is exactly the price at which each unit is sold – the demand curve ?Additional profit from producing and selling an incremental unit is now the difference between demand and marginal cost 169。2020 Pearson Education, Inc. Chapter 11 7 Capturing Consumer Surplus ?Price discrimination is the practice of charging different prices to different consumers for similar goods ?Must be able to identify the different consumers and get them to pay different prices ?Other techniques that expand the range of a firm’s market to get at more consumer surplus ?Tariffs and bundling 169。2020 Pearson Education, Inc. Chapter 11 5 Capturing Consumer Surplus ?All pricing strategies we will examine are means of capturing consumer surplus and transferring it to the producer ?Profit maximizing point of P* and Q* ?But some consumers will pay more than P* for a good ? Raising price will lose some consumers, leading to smaller profits ? Lowering price will gain some consumers, but lower profits 169。2020 Pearson Education, Inc. Chapter 11 3 Introduction ?Pricing without market power (perfect petition) is determined by market supply and demand ?The individual producer must be able to forecast the market and then concentrate on managing production (cost) to maximize profits 169。Chapter 11 Pricing with Market Power 169。2020 Pearson Education, Inc. Chapter 11 2 Topics to be Discussed ?Capturing Consumer Surplus ?Price Discrimination ?Intertemporal Price Discrimination and PeakLoad Pricing ?The TwoPart Tariff ?Bundling ?Advertising 169。2020 Pearson Education, Inc. Chapter 11 4 Introduction ?Pricing with market power (imperfect petition) requires the individual producer to know much more about the characteristics of demand as well as manage production 169。2020 Pearson Education, Inc. Chapter 11 6 Capturing Consumer Surplus Quantity $/Q D MR Pmax MC PC The firm would like to charge higher price to those consumers willing to pay it A P* Q* A P1 Firm would also like to sell to those in area B but without lowering price to all consumers B P2 Both ways will allow the firm to capture more consumer surplus 169。2020 Pearson Education, Inc. Chapter 11 8 Price Discrimination ? First Degree Price Discrimination ?Charge a separate price to each customer: the maximum or reservation price they are willing to pay ? How can a firm profit? ?The firm produces Q* ? MR = MC ?We can see the firm’s variable profit – the firm’s profit ignoring fixed costs ?Area between MR and MC ?Consumer surplus area between demand and price 169。2020 Pearson Education, Inc. Chapter 11 10 P* Q* Without price discrimination, output is Q* and price is P*. Variable profit is the area between the MC amp。2020 Pearson Education, Inc. Chapter 11 11 FirstDegree Price Discrimination ? In practice, perfect price discrimination is almost never possible 1. Impractical to charge every customer a different price (unless very few customers) 2. Firms usually do not know reservation price of each customer ? Firms can discriminate imperfectly ? Can charge a few different prices based on some estimates of reservation prices 169。2020 Pearson Education, Inc. Chapter 11 13 FirstDegree Price Discrimination in Practice Quantity D MR MC $/Q P2 P3 P1 P5 P6 Six prices exist resulting in higher profits. With a single price P*4, there are fewer consumers. P*4 Q* Discriminating up to P6 (petitive price) will increase profits. 169。2020 Pearson Education, Inc. Chapter 11 15 SecondDegree Price Discrimination ?Quantity discounts are an example of seconddegree price discrimination ?Ex: Buying in bulk at Sam’s Club ?Block pricing – the practice of charging different prices for different quantities of “blocks” of a good ?Ex: electric power panies charge different prices for a consumer purchasing a set block of electricity 169。 P3. Quantity D MR MC AC P0 Q0 Q1 P1 1st Block P2 Q2 2nd Block P3 Q3 3rd Block Different prices are charged for different quantities or “blocks” of same good. 169。2020 Pearson Education, Inc. Chapter 11 18 Price Discrimination ?Third Degree Price Discrimination ?Most mon type of price discrimination ?Examples: airlines, premium vs. nonpremium liquor, discounts to students and senior citizens, frozen vs. canned vegetables 169。2020 Pearson Education, Inc. Chapter 11 20 Creating Consumer Groups ? If thirddegree price discrimination is feasible, how can the firm decide what to charge each group of consumers? 1. Total output should be divided between groups so that MR for each group is equal 2. Total output is chosen so that MR for each group of consumers is equal to the MC of production 169。2020 Pearson Education, Inc. Chapter 11 22 ThirdDegree Price Discrimination ?Firm should increase sales to each group until incremental profit from last unit sold is zero ?Set incrementa