Learning Objectives
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# Learning Objectives - Identify conditions for price discrimination - Analyze bundling, peak-load pricing, and two-part tariffs - Apply pricing strategies to real business scenarios - Week 4: Market structures - Understanding of elasticity and marginal cost ## 1. Price Discrimination Charging different prices to di...
Learning Objectives
- Identify conditions for price discrimination
- Analyze bundling, peak-load pricing, and two-part tariffs
- Apply pricing strategies to real business scenarios
- Week 4: Market structures
- Understanding of elasticity and marginal cost
1. Price Discrimination
Charging different prices to different consumers for the same product.
First Degree: Each consumer pays their reservation price (perfect price discrimination). Captures all consumer surplus.
Second Degree: Price varies with quantity consumed (bulk discounts, tiered pricing).
Third Degree: Price varies by segment (student discounts, senior citizen pricing).
Conditions for Price Discrimination:
- Market power (not perfect competition)
- Distinguishable segments with different elasticities
- No resale/arbitrage
2. Other Pricing Strategies
Peak-Load Pricing: Higher prices during peak demand (electricity, ride-sharing). Bundling: Selling products together (Microsoft Office, meal deals). Two-Part Tariff: Fixed fee + per-unit charge (gym membership + per-visit, amusement parks).
| Strategy | Description | Example |
|---|---|---|
| 1st Degree PD | Each unit at reservation price | Auctions |
| 3rd Degree PD | Price = MC/(1-1/ | E |
| Bundling | Bundle price < sum of individual prices | Software suites |
Q1: An airline charges business travelers more. What type of price discrimination?Third-degree price discrimination - segmenting by willingness to pay (business vs. leisure). Q2: Why must price discrimination prevent resale?If customers can resell, low-price buyers would undercut the firm, defeating the strategy. Q3: How does Uber use peak-load pricing?Surge pricing during high demand increases prices, attracting more drivers and balancing supply/demand. Join Discord PreviousMarket StructuresNextGame Theory & Strategic Decisions