Kinh tế học - Chapter 14: Advanced pricing techniques

Chapter 14Advanced Pricing TechniquesAdvanced Pricing TechniquesPrice discriminationMultiple productsCost-plus pricing2Capturing Consumer SurplusUniform pricingCharging the same price for every unit of the productPrice discriminationMore profitable alternative to uniform pricingMarket conditions must allow this practice to be profitably executedTechnique of charging different prices for the same productUsed to capture consumer surplus (turning consumer surplus into profit)3The Trouble with Uniform Pricing (Figure 14.1)4Price DiscriminationExists when the price-to-marginal cost ratio differs between two products:5Price Discrimination Three conditions necessary to practice price discrimination profitably:Firm must possess some degree of market powerA cost-effective means of preventing resale between lower- and higher-price buyers (consumer arbitrage) must be implementedPrice elasticities must differ between individual buyers or groups of buyers6First-Degree (Perfect) Price DiscriminationEvery unit is sold for the maximum price each consumer is willing to payAllows the firm to capture entire consumer surplusDifficultiesRequires precise knowledge about every buyer’s demand for the goodSeller must negotiate a different price for every unit sold to every buyer7First-Degree (Perfect) Price Discrimination (Figure 14.2)8Second-Degree Price DiscriminationLower prices are offered for larger quantities and buyers can self-select the price by choosing how much to buyWhen the same consumer buys more than one unit of a good or service at a time, the marginal value placed on additional units declines as more units are consumed9Second-Degree Price DiscriminationTwo-part pricingCharges buyers a fixed access charge (A) to purchase as many units as they wish for a constant fee (f) per unitTotal expenditure (TE) for q units is:10Second-Degree Price DiscriminationWhen consumers have identical demands, entire consumer surplus can be captured by:Setting f = MCSetting A = consumer surplus (CS)Optimal usage fee when two groups of buyers have identical demands is the level for which MRf = MCf11Inverse Demand Curve for Each of 100 Identical Senior Golfers (Figure 14.3)12Demand at Northvale Golf Club (Figure 14.4)13Second-Degree Price DiscriminationDeclining block pricingOffers quantity discounts over successive discrete blocks of quantities purchased14Block Pricing with Five Blocks (Figure 14.5)15Third-Degree Price DiscriminationIf a firm sells in two markets, 1 & 2Allocate output (sales) so MR1 = MR2Optimal total output is that for which MRT = MCFor profit-maximization, allocate sales of total output so that MRT = MC = MR1 = MR216Third-Degree Price DiscriminationEqual-marginal-revenue principleAllocating output (sales) so MR1 = MR2 which will maximize total revenue for the firm (TR1 + TR2)More elastic market gets lower priceLess elastic market gets higher price17Allocating Sales Between Markets (Figure 14.6)18Constructing the Marginal Revenue Curve (Figure 14.7)19Profit-Maximization Under Third-Degree Price Discrimination (Figure 14.8)20Multiple ProductsRelated in consumptionFor two products, X & Y, produce & sell levels of output for which MRX = MCX and MRY = MCYMRX is a function not only of QX but also of QY (as is MRY) -- conditions must be satisfied simultaneously21Multiple ProductsRelated in production as substitutesFor two products, X & Y, allocate production facility so that MRPX = MRPYOptimal level of facility usage in the long run is where MRPT = MCFor profit-maximization: MRPT = MC = MRPX = MRPY22Multiple ProductsRelated in production as complementsTo maximize profit, set joint marginal revenue equal to marginal cost: MRJ = MCIf profit-maximizing level of joint production exceeds output where MRJ kinks, units beyond zero MR are disposed of rather than soldProfit-maximizing prices are found using demand functions for the two goods23Profit-Maximizing Allocation of Production Facilities (Figure 14.9)24Profit-Maximization with Joint Products (Figure 14.11)25Cost-Plus PricingCommon technique for pricing when firms do not wish to estimate demand & cost conditions to apply the MR = MC rule for profit-maximizationPrice charged represents a markup (margin) over average cost: P = (1 + m)ATC Where m is the markup on unit cost26Cost-Plus PricingDoes not generally produce profit-maximizing priceFails to incorporate information on demand & marginal revenueUses average, not marginal, cost27Practical Problems with Cost-Plus Pricing (Figure 14.13)28