Price Discrimination (2)


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Price Discrimination (2)

  1. 1. PRICE DISCRIMINATION???<br />1<br />
  2. 2. WHAT IT IS??<br />Sales of identical goods or services are transacted at different prices from the same provider.<br />The aim of which is to extract from the purchaser, the price they are willing to pay.<br />2<br />
  3. 3. Price Discrimination<br />Under certain conditions, a firm with market power is able to charge different customers different prices. This is called price discrimination. <br />
  4. 4. 4<br />Perfect Price Discrimination<br />Perfect price discrimination<br />Firm charges each customer the most the customer would be willing to pay for each unit he or she buys <br />By assuming that firms could somehow find out maximum price customers would be willing to pay for each unit of output it sells<br />It could increase profits even further, but at expense of consumers<br />
  5. 5. SUFFERERS……<br /> Consumers as their consumer surplus is eliminated. <br />5<br />
  6. 6. 6<br />Figure 3b Perfect price discrimination: the monopolist charges each customer their reservation price<br />Profit: gap between reservation price and ATC<br />PM<br />Monopolist will produce at the efficient level <br />ATC<br />MC = ATC<br />Demand<br />QM<br />QPD<br />MR<br />
  7. 7. Price Discrimination in Action<br />
  8. 8. Peak and off peak pricing<br />8<br />Peak and off-peak pricing and is common in the telecommunications industry, leisure retailing and in the travel sector. <br />Telephone and electricity companies separate markets by time: a daytime peak rate, and an off peak evening rate and a cheaper weekend rate. Electricity suppliers also offer cheaper off-peak electricity during the night.<br />At off-peak times, there is plenty of spare capacity and marginal costs of production are low (the supply curve is elastic) whereas at peak times when demand is high, we expect that short run supply becomes relatively inelastic as the supplier reaches capacity constraints. <br />
  9. 9. 9<br />
  10. 10. Types of price discrimination<br />10<br />
  11. 11. 1st degree<br />The practice of charging each consumer the maximum amount she is willing and able to pay.<br /> DISADVANTAGES: <br /><ul><li> Make consumers pay the amount that they’re WILLING to pay, or at least close to it.
  12. 12. Consumer surplus is taken by the supplier </li></ul>11<br />
  13. 13. 2nd degree<br />The practice of posting a discrete schedule of declining prices for different ranges of quantities.<br /> DISADVANTAGES:<br /><ul><li>More people can consume the good and more consumption
  14. 14. Most times UNNECESSARY consumption.</li></ul>12<br />
  15. 15. 3rd degree<br />Price varies by location or by customer segment. <br /> DISADVANTAGES:<br /><ul><li> It can seem unfair to pay more than somebody else for the same good
  16. 16. Some suffers and some are able to afford to buy</li></ul>13<br />
  17. 17. EXAMPLES<br />Johnson & Johnson new packs ranging from rs 51 to 551.<br />Popcorns available in a local market and theaters.<br />Airlines charges .<br />Education fees.<br />Tourist coming to india<br />14<br />
  18. 18. 15<br />Application: Airline Ticket Price<br />Lower price to students and non-business travelers<br />Higher price to business travelers<br />Price discrimination is satisfied<br />Downward sloping demand curve<br />Airline Companies are able to identify wiliness to pay<br />Saturday overnight stay<br />Purchase time<br />Round-trip or one-way<br />Can prevent resale of tickets by checking ID <br />
  19. 19. 16<br />