Price Discrimination | Chapter 11

price discrimination

charging different prices for the same good or service to maximize profit

To distinguish price discrimination, ask yourself: is the same good or service, that costs the same to produce, marketed at different prices? If all three are true, there is price discrimination. Common examples are adults/kids menus, early/late flyers, out-of-state/in-state students.

(To distinguish price discrimination, ask yourself:

Is the TERM good/service, that costs the TERM to produce, marketed at TERM prices? If TERM TERM are true, there is price discrimination.

Common examples are adults/kids menus, early/late flyers, out-of-state/in-state students)

not price discrimination, price discrimination

An economy class seat on a flight costs $300, while a first-class seat costs $500 — [Price discrimination / not price discrimination]

An economy class seat on a flight costs $300 for passengers booking the day of the flight, but passengers who book a month early pay $150 — [price discrimination/ not price discrimination]

Firms that can price discriminate must be able to do two things:

1. Distinguish buyers by their elasticities

2. Prevent resale

(Firms that can price discriminate must be able to do two things :
1. TERM buyers by their TERMS

2.Prevent TERM)

Firms that price discriminate follow this pricing rule: For inelastic (price-insensitive) buyers, charge a higher price. They are willing to/need to pay more and will adjust their behavior less in response to changes in price. For elastic (price-sensitive) buyers, charge a lower price. They are willing to/need to pay less and will adjust their behavior more — potentially seeking out cheaper substitutes—in response to price changes.

(Firms that price discriminate follow this pricing rule: For TERM (price-insensitive) buyers, charge a TERM price. They are willing to/need to pay more and will adjust their behavior less in response to changes in price. For TERM (price-sensitive) buyers, charge a TERM price. They are willing to/need to pay less and will adjust their behavior more — potentially seeking out cheaper substitutes — in response to changes in price.)

In price discrimination, firms sort/identify buyers’ elasticities by observable traits [student status, age] and buyer behavior.

(In price discrimination, firms sort/identify buyers’ elasticities by TERM traits [student status, age], and buyer term.

Firms that price discriminate need to identify buyers by their relative elasticities, but also prevent resale. THey prevent this by checking identity (linking product to specific customer), time-stamps (product only good for a certain date), imposing non-transferability (requirement that customers can’t exchange their product), altering the product itself (like tax exempt diesel), selling services not goods (hard to resell a haircut) or just buying all stages of the production process, called vertical integration.

(Firms that price discriminate need to identify buyers by their relative TERMS, but also prevent TERM. They prevent this by checking TERM (linking product to specific customer), TERM-TERMS (product only good for a certain date), imposing TERM-TERMLY (requirement that customers can’t exchange their product), TERMING the product itself (like tax exempt diesel), selling TERMS not TERMS (hard to resell a haircut), or just buying TERM TERM of the production process, called vertical integration.

Price discrimination is efficient, as deadweight loss is comparatively minimize — but not always equitable, as consumers are charge different prices for the same good

(Price discrimination is TERM, as deadweight loss is comparatively minimized— but not always TERM, as customers are charged different prices for the same good).

Perfect price discrimination refers to a pricing model where every customers pays exactly their maximum willingness to pay. All CS goes to the firm. It sells while profit is greater than or equal to the marginal cost. There is no deadweight loss. This practice is illegal but situations like haggling at car dealerships come close.

(TERM TERM TERM refers to a pricing model where every customer pays exactly their TERM TERM to TERM. All TT goes to the Term. It sells while TERM is Term than or term to TERM TERM. There is no TERM TERM TERM. This practice is TERM but situations like haggling at car dealerships come close.)

Perfect competition and perfect price discrimination are equally efficient. They differ only in who gets the surplus. Under perfect price discrimination, all surplus goes to the producer. Under perfect competition, all surplus goes to the consumer.

(Perfect competition and perfect price discrimination are termly term. They differ only in term gets the surplus. Under perfect price discrimination, all surplus goes to the term. Under perfect competition, all surplus goes to the term).

Welfare effects of price discrimination:

For producers: producer surplus and profit increase. For consumers: more units are sold, more buyers get the goods they need/want. Buyers who pay the higher price lose, buyers who get a discount gain. Sometimes total CS increases. For society: total surplus rises and deadweight loss shrinks. Efficient =/= fair, perfect price discrimination maximizes total surplus, but all surplus goes to the producer.

(Welfare effects of price discrimination:

For producers: producer surplus and profit term.

For consumers: more units are sold, more buyers term the goods they need/want. Buyers who pay the higher price term, buyers who get a discount term. Sometimes total CS terms.

For society: total surplus terms and deadweight loss terms.

Efficient =/= term, perfect price discrimination maximizes total surplus, but all surplus goes to the term.)

two-part tariff

(Term-term term) refers not to an import duty, but to a per-unit price(PPu=MC) plus a fixed fee (= CS at PPu) In other words, customers pay the firm what it costs to make the good, then pay the firm the remainder of what they’re willing to pay at that price. The average Ppu falls as more units are bought.

Price discrimination is selling the same product that costs the same to make at different prices to different consumers. Under price discrimination, firms charge higher prices to inelastic buyers and lower prices to elastic buyers. Conditions firms need for price discrimination include ability to distinguish buyers by their relative elasticities and ability to prevent resale. As a result, profit and output rise and deadweight loss falls. This is efficient but not necessarily equitable.

(Price discrimination is selling the TERM product that costs the TERM to make at TERM prices to TERM consumers. Under price discrimination, firms charge TERM prices to inelastic buyers and TERM prices to elastic buyers. Conditions firms need for price discrimination include ability to distinguish buyers by their relative TERMS and ability to prevent TERM. As a result, profit and output TERM and deadweight loss TERMS. This is efficient, but not necessarily TERM.)