MGM230H5 Lecture Notes - Lecture 9: Market Power, Marketing Buzz, Perfect Competition

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13 Dec 2014
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Suppose gym charges membership f, usage fee p per visit. Consumers underestimate the variance of usage relative to actual usage observed in bills. Steep overage rates take advantage of this bias: competition, monopoly. Can charge high price, may be able to price discriminate: oligopoly. Firms can still charge somewhat high prices if products are differentiated from one another. More differentiated firms" products are from one another, more market power each firm has: monopolistic competition. More differentiated a firm is, higher the mark up: perfect competition. Promotion, differentiation, distribution, variety, service, product attributes: psychological effects of pricing, perception of price differences. Weber-fechner law buyers perceive price differences in relative terms, not absolute. One implication consumers more willing to accept large add-on prices for big ticket purchases: reference prices. Standard to which an observed price is compared. People are na ve accountants; create different mental accounts for different types of expenditures: different mental accounts as separate.

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