Chapter 12 - Product pricing with monopoly power. In this chapter students will be able to: Explain price discrimination, the various degrees of price discrimination, and how price discrimination can increase a firm’s profit; spell out the three necessary conditions for a firm to be able to engage in price discrimination; explain the mathematics behind price discrimination. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 12: Product Pricing with Monopoly Power Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Explain price discrimination, the various degrees of price discrimination, and how price discrimination can increase a firm’s profit. Spell out the three necessary conditions for a firm to be able to engage in price discrimination. Demonstrate how, under third-degree price discrimination, market segments that have less elastic demand end up being charged a higher price, all else being equal. (continued) Learning Objectives (continued) Show how intertemporal price discrimination, a type of third-degree price discrimination, can increase a firm’s profit. Explore how two-part tariffs, a form of second-degree price discrimination, can increase a firm’s profit. Explain the mathematics behind price discrimination. PRICE DISCRIMINATION . | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 12: Product Pricing with Monopoly Power Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Explain price discrimination, the various degrees of price discrimination, and how price discrimination can increase a firm’s profit. Spell out the three necessary conditions for a firm to be able to engage in price discrimination. Demonstrate how, under third-degree price discrimination, market segments that have less elastic demand end up being charged a higher price, all else being equal. (continued) Learning Objectives (continued) Show how intertemporal price discrimination, a type of third-degree price discrimination, can increase a firm’s profit. Explore how two-part tariffs, a form of second-degree price discrimination, can increase a firm’s profit. Explain the mathematics behind price discrimination. PRICE DISCRIMINATION Explain price discrimination, the various degrees of price discrimination, and how price discrimination can increase a firm’s profit. Price Discrimination Definition – the practice of charging different prices for the same product when there is no cost difference to the producer in supplying the product Why would a firm want to price discriminate? To increase profit To increase total surplus (consumer surplus plus producer surplus) Types of Price Discrimination First-degree (perfect) price discrimination – a policy in which each unit of output is sold for the maximum price a consumer will pay Second-degree price discrimination (block pricing) – the use of a schedule of prices such that the price per unit declines with the quantity purchased by a particular consumer Third-degree price discrimination (market segmentation) – a situation in which each consumer faces a single price and can purchase as much as desired at that price, but the price differs among categories of consumers
