price discrimination must reflect differences in
income, taste (marginal value of units) not producer costs
necessary conditions
more than one market different elasticises, barriers to stop resale, associated with price-making behaviour
First degree
prices vary between units of output and individuals
perfect price discrimination
produce where MC crosses demand
p = MR = MC
deadweight loss is avoided
hard to achieve as
informational issues as must know the demand curve, preference relation problem as individuals will not willingly reveal their true marginal value
SD PD
prices vary between output but not customers
indirect price discrimination
vary the quality of goods, adopt a non-linear price schedule
block pricing
eliminates DWL, gain of CS, require good info with repeat purchases, low users pay high price
TD PD
prices vary between individuals but each unit sold sells at the same price
firm identifies customer groups with different WTP and charges different prices
sum the MR curves, lower price charged in more elastic market
the monopolist dilema
produce at MR=MC so if they want to sell more units MR<MC
MR
p + dp/dq . q
as the demand curve is downward sloping
dp/dq < 0
price discrimination gives a way out
as it involves varying the price to capture the differences in the willingness to pay