BUSS1040 Lecture 6: Lecture 6 - Price discrimination and Monopolistic Competition
8 Oct 2018
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Document Summary
Price discrimination is charging a different price for different units of output that are not related to the cost of production. The intuition is straightforward --> try and charge a higher price to those who have a higher willingness to pay. Monopolist charges different price for each unit sold. Requires knowledge of willingness to pay for every unit consumed by every consumer. Alternatively, the monopolist can use a two-part tariff. Mc < mr = good (earning more than what it is costing you) Compared to a perfectly competitive market, there is no deadweight loss from a perfectly price discriminating monopolist. However, the consumer surplus that exists in a perfectly competitive market is captured by the monopolist. It is critical that the monopolist be able to prevent arbitrage. Monopolist offers a menu of pricing options to consumers and allows consumers to choose which one they want. Monopolist knows demand curve or willingness to pay of different groups.
