ECO101H1 Lecture Notes - Lecture 10: Natural Monopoly, Price Discrimination, Deadweight Loss
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ECO101H1 Full Course Notes
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If successful and pursued on a broad scale, the result would be to limit the scope for price discrimination by publishers of textbooks. Why do stores issue coupons, in newspapers or flyers or on the web, which permit buyers to obtain a price discount? (most individuals ignore these coupons) Buyers who use coupons have a high elasticity of demand (buy at discounted, lower price). Buyers who do not use coupons have low elasticity of demand (buy at full, higher price). By issuing coupons, store separates its customers and faces two demand curves: those who do not use coupons, those who do use coupons. It"s not bad because monopolies earn profits: allocatively inefficient (due to reduced output) If consumer pays more to producer as a result of monopoly price: Producer better off by : transfer of wealth from consumer to producer. Who decides: welfare cost of monopoly is loss in total surplus as output is reduced.
