S6 CH2

A. Price discrimination

 = seller charges different buyers different P for same good

 if and only if
1) different P charged to different buyers
2) same product
3) same production cost
 aims to capture CS
∴ ↑P searcher profit + ↑ sales+ ↑ TSS
 3 types:
1st degree / 2nd degree / 3rd degree P discrimination

Remarks:
 difficult practice PD if customers get good at low cost can resell good
∴ easy separate consumers + preventing resale cost low → PD more common
 PD common in service > commodities

rd
B. 3 degree PD (market segmentation)

 = seller charge different P in different market segments with different Ped

 ↑ P ↑ inelastic demand
↓ P ↑ elastic demand
 different Ped + constant MC
→ sell same good different P in market of different Ed

1
 nd
C. 2 degree PD
 = seller charges different P for different Q of G / S
 = block pricing = multipart pricing
 ↑ per-unit P for ↓ Q sold
↓ per-unit P for ↑ Q sold

Remark:
 If mass production and mass purchase → ↓ AC → qty discount offered not PD
nd
 Water tariff 水價 not 2 PD ∵ used progressive pricing arrangement

st
D. 1 degree PD
 = P searcher charge consumer different P
according their maximum willingness to pay each unit good (= MB)
 consumer pay P for each unit = maximum willingness to pay
∴ all CS is extracted by price searcher
 = perfect price discrimination

 D curve = seller MR curve

 P searcher need know maximum willingness to pay of consumers
∵ hard obtain this info. ∴ hard practice 1st degree PD in reality

2
E. Condition for PD

1) monopoly power:
 seller need be P searcher → has monopoly power control output& P

2) markets are separable:

 seller must able
 separate different customers / market
 prevent resale between customers / market
 otherwise customers can buy goods at low P
→ resell goods at ↑ P → make profit

3) different demand elasticity:

 Ped in different market must different
 ∴ firm able charge ↑ P ↑ inelastic D & ↓ P ↑ elastic D

4) different info. cost:

 different info. cost of customers
∴ seller charge
 ↑ P ↑ info. cost
 ↓ P ↓ info. cost
 ↑ time cost / info. cost people → spend ↓ time collect info. about goods
∴ usually pay ↑ P