chapter 16: price discrimination and pricing strategies

Bundling

selling different goods together as a package

Group price discrimination

price discrimnation by charging different prices to different groups of people

Hurdle method

offer lower prices only to those buyers who are willing to overcome some hurdle or obstacle

Perfect price discrimination

charging each customer their reservation price

Price discrimination

monopolist knows each consumer’s WTP and can charge the WTP for every unit

Reservation price

the maximum price a customer will pay for a product, equal to their marginal benefit

why do firms price-discriminate

allows firms to increase profits by increasing quantity sold without dropping the price for all units

when is price discrimination possible

firms have market power, consumers differ in their willingness to pay and the firm has the ability to separate them, no resale is possible

how does price discrimination increase total welfare

allows monopolist to increase its output (value on those units is more than marginal cost of producing them), producer surplus increases but consumer surplus may not

second degree price discrimination

charge different prices to the same customer for different units that the customer buys

group price discrimination insights

charge a higher price to the group that values the product more (inelastic)

charge a lower price to the group that is more price sensitive (elastic)