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Bellringer slates
1. Which market structure is the best for consumers?
2. Which market structure is best for producers?
3....
How could the firm make even MORE
PROFIT?
• Remember MR < Price and they are the ONLY
FIRM!
Price Discrimination
• Discrimination: treating people differently based
on some characteristic, e.g. race or gender.
• Pr...
• Santa Barbara,
CA
• Argentina
Other examples:
Car insurance, young men
Military/teacher/police discount
Airline tickets
Prom tickets
University tuition
...
Seinfeld clip
• Economic market?
Consumer
surplus
Deadweight
loss
Monopoly
profit
Perfect Price Discrimination vs.
Single Price Monopoly
Here, the
monopoli...
10
Monopoly
profit
Perfect Price Discrimination vs.
Single Price Monopoly
Here, the monopolist
produces the competitive
qu...
11
Price Discrimination in the Real World
• In the real world, perfect price discrimination
is not possible:
– No firm kno...
Closure
1. Agree/Disagree: price
discrimination should
always be illegal
2. Price discrimination can’t
happen under perfec...
Price discriminating monopolist
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Price discriminating monopolist

  1. 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. 2. How could the firm make even MORE PROFIT? • Remember MR < Price and they are the ONLY FIRM!
  3. 3. 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.
  4. 4. • Santa Barbara, CA
  5. 5. • Argentina
  6. 6. Other examples: Car insurance, young men Military/teacher/police discount Airline tickets Prom tickets University tuition Medical services Season vs. single game tickets
  7. 7. Seinfeld clip • Economic market?
  8. 8. Consumer surplus Deadweight loss Monopoly profit Perfect Price Discrimination vs. Single Price Monopoly Here, the monopolist charges the same price (PM) to all buyers. A deadweight loss results. MC Quantity Price D MR PM QM
  9. 9. 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
  10. 10. 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!
  11. 11. 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 >>>>

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