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Lecture 17

ECON 402 Lecture Notes - Lecture 17: Price Discrimination


Department
Economics
Course Code
ECON 402
Professor
William Crowley
Lecture
17

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1 The law of one price: Identical products should sell for the same price everywhere, assuming no
transactions costs.
Arbitrage is buying a product in one market at a low price and reselling it in another market at a higher
price.
2 Price discrimination is the practice of charging different prices to different customers for the same
product when the price differences are not due to differences in cost.
To successfully practice price discrimination, some consumers must have greater willingness to pay for
the product than others and a firm must know consumer willingness to pay for the product.
3 Cost-plus pricing is charging consumers a price by adding a percentage markup to average cost.
Cost-plus pricing is not consistent with a firm maximizing profits because it ignores demand.
The percentage markup is higher on products that have inelastic demand and is lower on products that
have elastic demand.
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