Transcript L21
Lecture 21
Monopolistic behavior
Uniform pricing
y( p ) 10 p
TC ( y) 1 2 y
p
y
TPS, CS, PS and DWL
y( p ) 10 p
TC ( y) 1 2 y
p
y
Measurement of market power
How to measure market power?
p( y) 10 y
Candidate 1:
Problem:
Candidate 2:
y( p) 10 p
Elasticity and markup
y
y
p
p
Elasticity and Markup
With MR=0, elasticity=
Elastic part relevant
Markup
How Should a Monopoly Price?
The
same price for each unit to every
customer - uniform pricing.
discrimination – many different
prices for the same good
Price
Can
price-discrimination earn a
monopoly higher profits? How about
efficiency?
Types of Price Discrimination
1st-degree:
Prices may differ across
output units and buyers.
2nd-degree:
Prices may differ across
output unit but not buyers. (E.g. bulkbuying discounts.)
3rd-degree: Prices may differ across
buyers but not output units (student
discounts)
Two
part tariff
First-degree price discrimination
y( p ) 10 p
TC ( y) 1 2 y
p
y
First-degree Price Discrimination
First-degree
price discrimination
– gives a monopolist all of the
possible gains-to-trade,
– buyers are with zero surplus,
– efficient amount of output.
Third-degree Price Discrimination
Market
has segments - groups of
buyers (seniors, students, adults, firms)
In each segment the same price
Prices different across market
segments
Common
in real life
Third-degree Price Discrimination
Example:
individual buyers, firms
Secrets of happiness
Third-degree Price Discrimination
Why
price
is smaller?