CAS EC 101 Lecture Notes - Lecture 20: Price Ceiling, De Beers, Price Discrimination

• School: Boston University
• Department: Economics
• Course: CAS EC 101
• Professor: Michael Manove

Document Summary

Lecture 20: price discrimination, monopoly rents, and social surplus. Price discrimination: ex: a lobster shop in maine--visitors drive up a long way to the shop and the owner raises the prices if the car is expensive and lowers them if the car is junk. Perfect price-discrimination: suppose de beers had an instrument that could measure every customer"s. Wtp for diamonds: then de beers could set a special price for each customer to equal their. Other forms of price discrimination: firms cannot perfectly identify an individual"s wtp, but they can test people and make estimates. Use of obstacles: coupons in newspapers, mail-in rebates. Price discrimination based on quality: to make sure that customers with high wtp don"t end up paying less, firms often create minor differences in quality and reap major gains in surplus, hardcopy v. paperback. Should price discrimination be legal: ex: medication for aids. Price discrimination allows aids medication to be more expensive in rich countries than poor ones.