Industrial Economics - Appunti

Price discrimination, linear pricing and revenue management

Selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get.

• Could be fair or not
• Profit
• Affect market efficiency

Focusing on consumer surplus.

Monopoly - To sell more products it needs to lower the price to increase quantity.

Uniform price - Reducing the price - selling more units and paying it with additional revenue from the additional units.

Feasibility of price discrimination

Identification - The firm is able to identify demands of different types of customers or in separate units.

Easier in some markets than others.

• Tax consultants
• Doctors
• Social networks

Arbitrage - Prevent customers who are charged a low price from reselling to the customer who are charged a high price.

Prevent re-importation (e.g., re-importation drugs prescribed in US).

e.g., gasoline in Slovenia costs less than here - you live in Trieste and go there, you could not sell it here - Arbitrage same as buying and not selling.

In order to use price discrimination the firm needs to confront arbitrage and identification.

Type of discriminations

• First-degree / Personalized pricing
• Second-degree / Menu pricing
• Third-degree / Group pricing / Multimarket discrimination

Third-degree

The firm identifies different customers' willingness to pay.

Price is fixed but there are different prices for a specific market group.

A uniform price is charged to all customers in a particular group.

Product is sold at increasing price without losing lots of customers.

Pricing rule - Consumers with low elasticity of demand should be charged a high price.

Customers with high elasticity of demand should be charged a low price by consumers who are more sensitive to price changes.

e.g., Harry Potter volume sold in EU and US # if no price discrimination.

• US. Pu = 36-40u
• UE Pe = 24-34e
• CI = 49 for both

Solution may be price discrimination.

Price discrimination, linear pricing and revenue management

Selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get.

Could be fair or not.

Why? - Profit - Affect market efficiency.

Focusing on consumer surplus.

Monopoly - To sell more products it needs to lower the price to increase quantity.

Uniform price - Reducing the price - Selling more units and gaining additional revenue from the additional units.

Feasibility of price discrimination

Identification - The firm is able to identify demands of different types of customers or in separate units.

Easier in some markets than others.

• Tax consultants
• Doctors
• Social networks

Arbitrage - Prevent customers who are charged a low price from reselling to customers who are charged a high price.

Prevent re-importation (e.g. re-importation drugs prescribed in US).

e.g. Gasoline in Slovenia costs less than here - you live in Trieste and go there (you cannot sell it here).

In order to use price discrimination the firm needs to confront arbitrage and identification.

Type of discriminations

• First-degree / Personalized pricing
• Second-degree / Menu pricing
• Third-degree / Group pricing / Multimarket discrimination

Third-degree

The firm’s identify 4 customers 7 willingness to pay.

Price is fixed but there are 4 prices for a specific cust group.

A uniform price is charged to all customers in a particular group linear-pricing.

Uniform prices are charged to 4 props.

• Kids fare
• Airlines etc

Pricing rule: Consumers with low elasticity of demand should be charged a high price.

Customers with high elasticity of demand should be charged a low price - Customers are more sensitive to price changes.

e.g. Harry Potter volume sold in UE and US - If no price discrimination unless price all over but here.

• US: Pus = 36-40u
• UE Pe = 24-40e
• C1 = 48 for both

Solution may be the accommodation.

Price discrimination, linear pricing and revenue management

Selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get.

• Could be fair or not
• Profit
• Affect market efficiency

Focusing on consumer surplus.

Monopoly - To sell more products it needs to lower the price to increase quantity.

Uniform price - reducing the price selling more units and gaining additional revenues from the additional units.

Feasibility of price discrimination

Identification - The firm is able to identify demands of different types of customers or in separate markets.

Easier in some markets than in others: