Pricing Strategies Uniform Pricing p NonUniform Pricing p

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Pricing Strategies Uniform Pricing p Non-Uniform Pricing p n n Two-part tariff Quantity discounts

Pricing Strategies Uniform Pricing p Non-Uniform Pricing p n n Two-part tariff Quantity discounts Tie-in sales Menu Pricing Quality Discrimination p Coupons p Southwest Airlines p This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Conditions for Price Discrimination Market Power p Identify Consumers p Prevent or limit resale

Conditions for Price Discrimination Market Power p Identify Consumers p Prevent or limit resale p n n n n Services Warranties Adulteration Transaction Cost Contractual Remedies Vertical Integration Government Intervention This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Canadian Web Pharmacy Sales p Lipitor is cheaper in the Mexico and Canada than

Canadian Web Pharmacy Sales p Lipitor is cheaper in the Mexico and Canada than in US. n Does this create problems for Pfizer’s pricing strategy? p n p http: //www. canadamedicineshop. com Does the US have any interest in protecting Pfizer’s ability to do this? Zocor patent expired in June 2006 n n n What happened to Merck’s stock price? What happened to Pfizer’s stock price? What happens to Pfizer’s ability to use price discrimination? This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Major industries using Aluminum Industry Elasticity of Demand for Aluminum Integrated by Alcoa? Cookware

Major industries using Aluminum Industry Elasticity of Demand for Aluminum Integrated by Alcoa? Cookware -1. 6 Yes Electric Cable Elastic (copper a substitute) Yes Automobile Parts -1. 5 Yes Iron and Steel Inelastic (no substitutes) No Aircraft Inelastic (no substitutes at the time) No This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Perfect Price Discrimination Inverse Demand: P=1 -. 001 Q . 64 MC =. 28

Perfect Price Discrimination Inverse Demand: P=1 -. 001 Q . 64 MC =. 28 360 720 1000 MR=1 -. 002 Q This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill. Q

Two Part Tariff Inverse Demand: P=1 -. 001 Q . 64 MC =. 28

Two Part Tariff Inverse Demand: P=1 -. 001 Q . 64 MC =. 28 360 720 1000 MR=1 -. 002 Q This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Tie-in Sales and Bundling Expedia Streets Expedia Trip Planner Bundle Consumer $20 $15 $35

Tie-in Sales and Bundling Expedia Streets Expedia Trip Planner Bundle Consumer $20 $15 $35 Professional $30 $10 $40 Table entries are reservation prices Strategy 1: Charge $20 for Streets and $10 for Planner • Revenue = $60 Strategy 2: Charge $35 for the bundle. • Revenue = $70 This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Different Prices to Different Customers This slideshow was written by Ken Chapman, but is

Different Prices to Different Customers This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Figure 9. 2: 3 rd Degree Price Discrimination $ MC = m Demand Group

Figure 9. 2: 3 rd Degree Price Discrimination $ MC = m Demand Group 1 Demand Group 2 Q 1 MR for Group 2 MR for Group 1 This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Other Methods of Third Degree Price Discrimination p Cut price on complaints n p

Other Methods of Third Degree Price Discrimination p Cut price on complaints n p Value of Time n p L. A. Times Rebates Willingness to wait n Hard cover books This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.

Welfare Effects p Perfect price discrimination n n p Efficient Shifts surplus toward sellers

Welfare Effects p Perfect price discrimination n n p Efficient Shifts surplus toward sellers Third Degree Price Discrimination n Price > MC Inefficient allocation of goods between customers May make customers do inefficient things to earn the lower price. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, Mc. Graw-Hill.