3.2.1 Price Discrimination: Definition

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En provenance du cours de University of Pennsylvania

Microeconomics: When Markets Fail

264 notes

University of Pennsylvania

Microeconomics: When Markets Fail

264 notes

Perfect markets achieve efficiency: maximizing total surplus generated. But real markets are imperfect. In this course we will explore a set of market imperfections to understand why they fail and to explore possible remedies including as antitrust policy, regulation, government intervention. Examples are taken from everyday life, from goods and services that we all purchase and use. We will apply the theory to current events and policy debates through weekly exercises. These will empower you to be an educated, critical thinker who can understand, analyze and evaluate market outcomes.

À partir de la leçon

Monopoly Continued

Monopolies come in various types: one price monopoly, natural monopoly, price discrimination and monopolistic competition. This week we will expand the basic monopoly model to cover these cases and then explore market outcomes in each case. We will also discuss how government may intervene in such cases to benefit society as a whole and increase the surplus generated by the market.

3.2.1 Price Discrimination: Definition3:53

3.2.2 Price Discrimination: Graphical Example4:29

3.3.1 Monopolistic Competition: Definiton2:08

3.3.2 Monopolistic Competition: Core Results1:53

3.3.3 Monopolistic Competition: Graphical Presentation in the Short Run3:10

3.3.4 Monopolistic Competition: Graphical Presentation in the Long Run1:49

3.3.5 Monopolistic Competition: Mark up and Excess Capacity2:11

Rencontrer les enseignants

Rebecca Stein
Senior Lecturer
Economics

[MUSIC]

Up to now we've looked at markets where the firm is setting one price to all its

customers.

But now I'd like us to look at one of my favorite models,

which is the case of price discrimination.

This is a situation where the firm is selling different units of a good for

different prices.

In order to do this, the firm must be able to do two things.

First of all, it has to be able to identify and

separate different buyer types.

Those who are maybe are willing to pay more and

those who are only prepared to buy the product if they pay less.

The second thing the firm must be able to do is sell a product

that cannot be resold or that its not worth reselling.

Otherwise we will have room for arbitrage,

people will buy the good at a low price and resell it at a slightly higher price.

Let's look at a few examples of price discrimination.

One example is having theater tickets sold to seniors or to students at a discount.

So you might have a movie theater that has one price for everyone,

but there's a lower price if you're under the age of 18 or

if you're over the age of let's say 62.

So, how do you distinguish between the two groups?

By asking for ID,

by making sure that they are belonging to the group that deserves the discount.

And how do you eliminate resale?

Well you give the ticket to the person who's walking into the theater.

And so if you're buying a senior ticket, you have to walk in with a senior ticket.

You can't give it to someone who is not a senior.

Let me give you another example of price discrimination.

This is slightly more complicated.

Let's think of those coupons that we use sometimes in grocery stores.

Here in America there are coupons that are sent in the mail and for example you

might have a coupon that allows you to buy a box of cereal at a discount of $0.50.

So you go to the grocery store with your coupon.

And instead of paying $3.95, you're paying $0.50 less.

You're paying $3.45.

Why do I say this is a case of price discrimination?

What the coupon allows the firm to do, is to distinguish between those customers

who are price sensitive and those customers who are not price sensitive.

If you're not price conscious, you won't bother cutting the coupons,

remembering to bring them to the grocery store and using them.

But if you are price sensitive you will do this.

So even though everyone in America gets mailed these coupons in the mail,

this coupon is still a mechanism of distinguishing between these two groups.

Those who are willing to pay more and

those who will only buy cereal at the lower price.

Now of course these cereal boxes can be resold, but

there really isn't any point to it.

I'm not going to by my cereal box at $3.45, and

then sell it on eBay for $0.10 more.

That wouldn't make sense, so this is a situation where the firm can identify and

separate two different buyer types, and we don't have a resale market.

Just because it really doesn't make sense.

There's not a lot of room for arbitrage in this situation.

Let's go ahead and model the situation.

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