Académique Documents
Professionnel Documents
Culture Documents
Pricing and
Advertising
Topics
Why and How Firms Price
Discriminate.
Perfect Price Discrimination.
Quantity Discrimination.
Multimarket Price Discrimination.
Two-Part Tariffs.
Tie-In Sales.
Advertising.
Nonuniform pricing
nonuniform pricing - charging
consumers different prices for the same
product or charging a single customer a
price that depends on the number of
units the customer buys
Price discrimination
Price discrimination - practice in which
a firm charges consumers different
prices for the same good
p, $ per unit
A
ps
MC
es
pc = MCc
ec
E
D
MCs
Demand, MRd
MC1
MRs
Qs
Qc = Qd
Quantity Discrimination
Most customers are willing to pay more
for the first unit than for successive
units:
the typical customers demand curve is
downward sloping.
70
A=
$200
60
C=
$200
50
B=
$1,200
D=
$200
30
90
E = $450
F = $900
m
30
G = $450
m
Demand
Demand
MR
20
40
90
Q, Units per day
30
90
Q, Units per day
1
1
MR p A 1 m pB 1 MR B
A
B
1
1
MR p A 1 m pB 1 MR B
A
B
and rearranging,
1
1
pA
A
pB 1 1
B
Identifying Groups
Two approaches to divide customers
into groups:
divide buyers into groups based on
observable characteristics of consumers.
identify and divide consumers on the basis
of their actions
Two-Part Tariffs
two-part tariff - a pricing system in
which the firm charges a customer a
lump-sum fee (the first tariff or price) for
the right to buy as many units of the
good as the consumer wants at a
specified price (the second tariff)
Tie-In Sales
tie-in sale- a type of nonlinear pricing in
which customers can buy one product
only if they agree to buy another product
as well.
requirement tie - in sale a tie-in sale in
which customers who buy one product
from a firm are required to make all their
purchases of another product from that
firm
Advertising
A monopoly advertises to raise its profit.
A successful advertising campaign shifts
the market demand curve by changing
consumers tastes or informing them about
new products.
p2 = 12
p1 = 11
e2
B
e1
1
MC = AC
MR 1
0
Q1 = 24 Q2 = 28
MR 2
D1
D2
68
76
MB 1
MC
A2
A1
Minutes of advertising time purchased per day