comm1100 wk 5 + 7

What is price discrimination? Why is it used? Types?

Monoploies charging different customers different prices for the same or similar product.
To capture customers’ different willingness to pay.

perfect price competition - Charging each customer the maximum amount they are willing to pay (magically be able to know what they’re willing to pay) - can’t get in real world

second degree - charge differnt people different amounts depending on the quantity you buy (mass buying means less price)

third degree - buyer characteristics (student/pension discounts)

What does competition law prohibit?

Cartels, price-fixing, market-sharing and other anti-competitive conduct.

Intellectual property law 

Law protecting business creations, ideas and investments.

• Copyright: Automatically protects the specific expression of works such as books, software, films and music, but not the underlying idea.  

• Trademarks: Protect names, logos, packaging, sounds or other brand identifiers.  

• Patents: Give inventors exclusive rights to make and sell novel inventions; expensive and difficult to obtain but potentially highly valuable.  

What is real vs personal property?

Land and buildings

or

Movable goods such as equipment and products.

Normative Considerations with Customers 

What to produce, Pricing and availability, Delivery and access , Law versus responsibility 

What is the utilitarian approach?

Choose the action producing the greatest overall benefit for all stakeholders.

What is the deontological approach?

Follow universal moral rules and protect rights regardless of outcomes.

Nash equilibrium

An equilibrium in which each player's choice is a best response to the choices other players are making.   

Prisoner’s dilemma

A type of game in which each player's best response is always not to cooperate even though cooperation would make them all better off.

Coordination game

A type of game in which all players have a common interest in coordinating their choices  

Why is collusion difficult to sustain?

Each firm has an incentive to secretly cut its price, attract more customers and earn a higher individual profit.

prisoner’s dilemma - Cutting prices is each firm’s dominant strategy, even though all firms would earn more by maintaining high prices.

Q: What does receiving a “marker” from the ACCC mean in relation to cartel conduct?

It confirms that the person or business is the first to report that specific cartel and request immunity, securing first place in the immunity queue if all conditions are met.

How do firms try to sustain collusion in real life?

They monitor competitors, use rewards and punishments, compete across multiple markets and use price-matching policies that reduce the benefit of undercutting.

Competition across multiple markets:
Sometimes the same firms compete in several markets or locations. A firm that cheats in Market A may be punished by rivals competing more aggressively against it in Market B.

Example:
Two airlines agree to maintain high ticket prices. If one airline lowers prices on the Sydney–Melbourne route, the other may retaliate by lowering prices on several other routes. Knowing this could happen discourages either airline from cheating.

So, firms sustain collusion by making cooperation profitable and cheating costly. Collusion between competitors is generally illegal.

What are the four main types of cartel conduct

1. Price fixing — agreeing on prices

2. Output restrictions — limiting production or supply

3. Market sharing — dividing customers, suppliers or territories

4. Bid-rigging — coordinating bids instead of competing honestly

What is a concerted practice?

Businesses coordinating their conduct without necessarily forming a formal agreement.

What is bid-rigging or collusive tendering?

Competitors secretly agree on how bids will be submitted or who will win a contract, rather than competing genuinely.

What is cover pricing?

Competitors submit deliberately higher or less attractive bids so a chosen competitor wins

What is bid suppression?

Competitors agree that one or more businesses will not submit a bid.

What is bid rotation?

Competitors take turns winning contracts, sometimes compensating the firms that lose.

What is a coordination game?

A game where players benefit from choosing compatible strategies. Each player’s best choice depends on what the other player chooses, and there may be multiple Nash equilibria.

Example: Two businesses benefit from adopting the same payment system because it makes transactions easier for both.

waht condition must be true for price discrimintaiotn?

• no resale

Explain why the marginal revenue curve lies below the demand curve

• monopolist can only attract more customers by lowering its price (bc downwards sloping demand curve)

• This means that the marginal revenue from selling an additional unit is less than the price because the price must be lowered for every unit the firm sells (not just the last unit)