Chapter 14: Price discrimination and pricing strategy

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6 Terms

1
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What is price discrimination

Selling the same product to different people at different prices

2
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What are the principles of price discrimination

  • The demand cure being different makes it more profitable to set prices at different prices

  • To maximize profit the firm should set a higher price in markets with more inelastic demand

  • Arbitrage makes it difficult for a firm to set different prices in different markets

3
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What is arbitrage

Taking advantage of price differences for the same good in different markets by buying low in one market and selling high in another market

EX: when somebody buys a stock on one exchange for 10 dollars and immediately sells it on another exchange for 11 dollars

4
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What is perfect price discrimination

Each customer is charged their maximum willingness to pay

5
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What is tying

To use one good a consumer must use a second good that is sold by the same firm

EX: printer from best buy only works with ink from best buy

6
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What is bundling

Requiring that products be bought together in a bundle or package

EX: Microsoft bundling excel, word, outlook, and powerpoint in one package