Price discrimination and monopolistic competition

Price discrimination

charging different consumers different prices for goods, as to extract the maximum profit from them, can not be done by firms in competative market

Arbitrage

act of buying a good for a lower price and seling it immediately for a higher price

First-degree price discrimination

every consumer is charged their willingness to pay, MR maches demand, no DWL

Second-degree price discrimination

charge different prices based on characteristics of purchase/bundle, same price schedule offered to custmers and they sort themselves, results in under-provision but better than non-discriminating monopolies

Third degree price discrimination

charge different prices based on characteristic of consumer, offer different groups a different per-unit price, useful when groups have different price elasticity of demand, gets closer to optimal quantity in market

Product differentiation

most products fall on a spectrum between exactly the same and totally different, products are differentiated not different

Monopoly competative industries short-run equilibrium

residual demand is downward sloping, price-makers, MC curve differs from demand curve, produce where MR=MC, profibility depends on costs and residual demand

Monopolistic competitve industroes

firms produce differentiated products, each firm faces downward sloping residual demand curve, free entry and exit, many firms/products in industry 

Monopolitic competition entry and exit

if existing firms are profitable in short-run more firms will enter the market, will decrease residual demand curve for each firm, differentiates from monopolies, continue until zero profit

long run efficiency - Monopolistic Competition

does not product efficient outcomes, produce where MC is less than the Marginal Benefit to consumers, do not produce at minimum ATC, better than monopolies