1. Bellringer slates
1. Which market structure is the best for consumers?
2. Which market structure is best for producers?
3. Which market structure is shown in these graphs?
4. What would you advise this firm to do?
2. How could the firm make even MORE
PROFIT?
• Remember MR < Price and they are the ONLY
FIRM!
3.
4. Price Discrimination
• Discrimination: treating people differently based
on some characteristic, e.g. race or gender.
• Price discrimination: selling the same good
at different prices to different buyers.
• Examples (3 min)
• The characteristic used in price discrimination
is willingness to pay (WTP):
– A firm can increase profit by charging a higher price to
buyers with higher WTP.
7. Other examples:
Car insurance, young men
Military/teacher/police discount
Airline tickets
Prom tickets
University tuition
Medical services
Season vs. single game tickets
10. 10
Monopoly
profit
Perfect Price Discrimination vs.
Single Price Monopoly
Here, the monopolist
produces the competitive
quantity, but charges each
buyer his or her WTP.
This is called perfect price
discrimination.
The monopolist captures all
CS
as profit.
But there’s no DWL.
“Price discriminating
monopolist”
MC
Quantity
Price
D
MR
Q
11. 11
Price Discrimination in the Real World
• In the real world, perfect price discrimination
is not possible:
– No firm knows every buyer’s WTP
– Buyers do not announce it to sellers
• So, firms divide customers into groups
based on some observable trait
that is likely related to WTP, such as age.
• BUT today, THINGS HAVE CHANGED!
12. Closure
1. Agree/Disagree: price
discrimination should
always be illegal
2. Price discrimination can’t
happen under perfect
competition
3. City of New York
shouldn’t allow Soup Nazi
to operate >>>>
