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- 2. Monopolies face the entire (downward sloping) market demand and therefore must lower its price to increase
- 3. Price Discrimination D $15 $12 20 21 If this monopolist could lower its price to the
- 4. Price Discrimination (Group Pricing) Suppose that you are the publisher for JK Rowling’s newest book “Harry
- 5. D $36 9 D $24 6 D $36 15 $24 3 European Market US Market Worldwide
- 6. $36 15 $24 3 $12 $18 D MR
- 7. $36 15 3 D MR MC 6.5 $17 $4
- 8. If you can distinguish between the two markets (and resale is not a problem), then you
- 9. If you can distinguish between the two markets (and resale is not a problem), then you
- 10. D 9 MC MR 4 D 6 MC MR 2.5 $14 European Market US Market Price
- 11. Price Discrimination (Two Part Pricing) Suppose you operate an amusement park. You know that you face
- 12. D 49 D 39 $41 Old Young Group Pricing $51 $100 $80 If you could distinguish
- 13. $100 180 $80 20 $60 $70 D MR First, lets calculate a uniform price for both
- 14. $100 180 D MR MC 6.5 $46 $2
- 15. D 54 D 34 $46 Old Young First, you set a price for everyone equal to
- 16. D 54 $46 $100 The young person paid a total of $2,484 for the 54 rides.
- 17. D 54 D 34 $46 Old Young Two Part pricing involves setting an “entry fee” as
- 18. D 98 D 78 $2 Old Young Suppose that you set the cost of the rides
- 19. D 98 D 78 $2 Old Young $2 $100 $80 $4802 $3042 Block Pricing involves offering
- 20. Suppose that you couldn’t distinguish High value customers from low value customers: Would this work? 1
- 21. D 78 $22 $100 We know that is the high value consumer buys 98 ticket package,
- 22. D 98 $2 $100 You need to set a price for the 98 ride package that
- 23. 1 Ticket Per Ride 78 Ride: $3198 ($41/Ride) 98 Rides: $3438 ($35/Ride) Menu Pricing: You can’t
- 24. Bundling Suppose that you are selling two products. Marginal costs for these products are $100 (Product
- 25. If you sold each of these products separately, you would choose prices as follows Product 1
- 26. Pure Bundling does not allow the products to be sold separately Product 2 (MC = $150)
- 27. Mixed Bundling allows the products to be sold separately Product 1 (MC = $100) Product 2
- 28. Mixed Bundling allows the products to be sold separately Product 1 (MC = $100) Product 2
- 29. Product 1 (MC = $100) Product 2 (MC = $150) Bundling is only Useful When there
- 30. Bundling is only Useful When there is variation over individual consumers with respect to the individual
- 31. Tie-in Sales Suppose that you are the producer of laser printers. You face two types of
- 32. Tie-in Sales You have already built 1,000 printers (the production cost is sunk and can be
- 33. Tie-in Sales Suppose that you started producing toner cartridges and insisted that your lessees used your
- 34. Tie-in Sales D 12 D 16 $12 $16 8 $4 $4 12 $32 $72 By forcing
- 35. Could you do even better? If you could design the ink cartridges in such a way
- 36. Can a monopoly be a good thing? Suppose that the demand for Hot Dogs is given
- 37. Can a monopoly be a good thing? Each firm must price their own product based on
- 38. Can a monopoly be a good thing? Each firm must price their own product based on
- 39. Any equilibrium with the two firms must have each of them acting optimally in response to
- 40. Can a monopoly be a good thing? Now, suppose that these companies merged into one monopoly
- 41. Case Study: Microsoft vs. Netscape The argument against Microsoft was using its monopoly power in the
- 42. Case Study: Microsoft vs. Netscape Suppose that the demand for browsers/operating systems is as follows (look
- 43. Case Study: Microsoft vs. Netscape Case #2: Now, suppose that Microsoft competes in the Browser market
- 44. Spatial Competition – Location Preferences When you purchase a product, you pay more than just the
- 45. Spatial Competition – Location Preferences Starbucks currently has 5,200 locations in the US Gucci currently has
- 46. Consider a market with N identical consumers. Each has a demand given by We must include
- 47. There is one street of length one. Suppose that you build one store in the middle.
- 48. Now, suppose you build two stores… X = 1 X = 1/4 X = 1/4 With
- 49. Now, suppose you build three stores… X = 1 X = 1/6 X = 1/6 With
- 50. With ‘n’ stores, the price you can charge is As n gets arbitrarily large, p approaches
- 51. Maximizing Profits Number of locations is based on: Size of the market (N) Fixed costs of
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