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econ2300_-_topic_7_-_prici.doc

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Department
Economics
Course
ECON 2300
Professor
All Professors
Semester
Winter

Description
Intermediate Microeconomic Theory I ECON 2300 – Summer 2011 – Mark Melatos Topic 7 – Pricing with Market Power – June 30 First Degree Price Discrimination - Firms charge each consumer their maximum WTP – i.e. their reservation price. - Not practical – firms lack information. Second Degree PD - A consumer may purchase many units of a good over a period of time. - Sat WTP declines with the # units purchased. - Faced with such declining WTP, a firm may charge different prices for different ‘blocks’ (i.e. quantities) of consumption. Third Degree PD - Groups of consumers have different D curves. - If the firm can identify these, o How much output should it produce in total? o How much should it sell to each group? - Solution: Total output must be divided between the groups of consumers such that: o MR = MC in each market. o MRs are the same in each market. Two-Part Tariff - An alterna
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