Price%20Discrimination

1
Price Discrimination

• Chapter 5

2
Postscript on textbook market

• Iuzuka paper on the website
• Note that it is not so obvious that publishers
  will want to kill off existing editions to
  prevent second hand market from functioning

3
Price Discrimination

• Read the McAfee article as well as Ch 5.
• Examples
• Two people sitting next to each other on the same
  plane who paid very different amounts for their
  tickets?
• A coke at the corner store or a coke at Loblaws?

4
Price discrimination is about capturing surplus
5
Necessary conditions for Price Discrimination

1. Consumers must differ in their demands for the
   good
2. The seller must possess market power
3. Arbitrage, or resale, must be difficult or
   impossible

6
Mechanisms for capturing surplus

1. Market Segmentation
2. Two-part pricing
3. Multipart pricing
4. Tying and Bundling
5. Quality discrimination

7
Types of price discrimination(pigou)
8
First Degree PD
9
3 important properties

• Monopolist captures all the surplus
• Price equals marginal cost
• Perfectly discriminating monopolist has exactly
  the right signals of which products to produce,
  and which qualities to produce

10
Third Degree PD

• Market can be segmented into two or more groups