Lecture Microeconomics (5th edition): Chapter 12 - Capturing surplus. This chapter presents the following content: Introduction - airline tickets; price discrimination: first degree, second degree, third degree; tie-in sales. | 1 Capturing Surplus Chapter 12 Copyright (c)2014 John Wiley & Sons, Inc. 1 2 Chapter Twelve Overview Introduction: Airline Tickets Price Discrimination First Degree Second Degree Third Degree Tie-in Sales Requirements Tie-ins Package Tie-ins (Bundling) Chapter Twelve Copyright (c)2014 John Wiley & Sons, Inc. 3 Chapter Twelve Uniform Price Vs. Price Discrimination Definition: A monopolist charges a uniform price if it sets the same price for every unit of output sold. While the monopolist captures profits due to an optimal uniform pricing policy, it does not receive the consumer surplus or dead-weight loss associated with this policy. The monopolist can overcome this by charging more than one price for its product. Definition: A monopolist price discriminates if it charges more than one price for the same good or service. Copyright (c)2014 John Wiley & Sons, Inc. 4 Chapter Twelve Forms of Price Discrimination Definition: A policy of first degree (or perfect) price discrimination prices | 1 Capturing Surplus Chapter 12 Copyright (c)2014 John Wiley & Sons, Inc. 1 2 Chapter Twelve Overview Introduction: Airline Tickets Price Discrimination First Degree Second Degree Third Degree Tie-in Sales Requirements Tie-ins Package Tie-ins (Bundling) Chapter Twelve Copyright (c)2014 John Wiley & Sons, Inc. 3 Chapter Twelve Uniform Price Vs. Price Discrimination Definition: A monopolist charges a uniform price if it sets the same price for every unit of output sold. While the monopolist captures profits due to an optimal uniform pricing policy, it does not receive the consumer surplus or dead-weight loss associated with this policy. The monopolist can overcome this by charging more than one price for its product. Definition: A monopolist price discriminates if it charges more than one price for the same good or service. Copyright (c)2014 John Wiley & Sons, Inc. 4 Chapter Twelve Forms of Price Discrimination Definition: A policy of first degree (or perfect) price discrimination prices each unit sold at the consumer's maximum willingness to pay. This willingness to pay is directly observable by the monopolist. Definition: A policy of second degree price discrimination allows the monopolist to offer consumers a quantity discount. Definition: A policy of third degree price discrimination offers a different price for each segment of the market (or each consumer group) when membership in a segment can be observed. Copyright (c)2014 John Wiley & Sons, Inc. 5 Chapter Twelve “Willingness to Pay” Curve Definition: The consumer's maximum willingness to pay is called the consumer's reservation price. Think of the demand curve as a "willingness to pay" curve. If the monopolist can observe the willingness to pay of each customer (based on, for example, residence, education, "look", etc), then the monopolist can observe demand perfectly and can "perfectly" price discriminate. Copyright (c)2014 John Wiley & Sons, Inc. 6 Chapter Twelve Forms of Price Discrimination Definition: A .
