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1、Chapter Twenty-Five,Monopoly Behavior 垄断行为,How Should a Monopoly Price?,So far a monopoly has been thought of as a firm which has to sell its product at the same price to every customer. This is uniform pricing. Can price-discrimination （差别定价）earn a monopoly higher profits?,Structure,First-degree pr
2、ice discrimination Second-degree price discrimination Third-degree price discrimination Bundling Two-part tariff,Types of Price Discrimination,1st-degree: Each output unit is sold at a different price. Prices may differ across buyers. 2nd-degree: The price paid by a buyer can vary with the quantity
3、demanded by the buyer. But all customers face the same price schedule. E.g. bulk-buying discounts.,Types of Price Discrimination,3rd-degree: Price paid by buyers in a given group is the same for all units purchased. But price may differ across buyer groups. E.g., senior citizen and student discounts
4、 vs. no discounts for middle-aged persons.,First-degree Price Discrimination,Each output unit is sold at a different price. Price may differ across buyers. It requires that the monopolist can discover the buyer with the highest valuation of its product, the buyer with the next highest valuation, and
5、 so on.,First-degree Price Discrimination,p(y),y,$/output unit,MC(y),Sell the th unit for $,First-degree Price Discrimination,p(y),y,$/output unit,MC(y),Sell the th unit for $ Later on sell the th unit for $,First-degree Price Discrimination,p(y),y,$/output unit,MC(y),Sell the th unit for $ Later on
6、 sell the th unit for $ Finally sell the th unit for marginal cost, $,First-degree Price Discrimination,p(y),y,$/output unit,MC(y),The gains to the monopolist on these trades are: and zero.,The consumers gains are zero.,First-degree Price Discrimination,p(y),y,$/output unit,MC(y),So the sum of the g
7、ains to the monopolist on all trades is the maximum possible total gains-to-trade.,PS,First-degree Price Discrimination,p(y),y,$/output unit,MC(y),The monopolist gets the maximum possible gains from trade.,PS,First-degree price discrimination is Pareto-efficient.,First-degree Price Discrimination,Fi
8、rst-degree price discrimination gives a monopolist all of the possible gains-to-trade, leaves the buyers with zero surplus, and supplies the efficient amount of output.,Examples of 1st-degree Price Discrimination,Auction of antique Car sales Financial aid in universities May not be practical do not
9、know willingness to pay too costly,Non-linear pricing Unit price depends on quantity purchased Bulk discount Setting A seller does not know the willingness to pay by each individual buyer Consumers marginal willingness to pay declines with quantity,Second-degree Price Discrimination,Setting a unifor
10、m price is not optimal Too high a price would lose high volume consumer. Too low a price would lost revenue from low volume consumer. Coke example. Mechanism： Set price for different volumes to let consumers identify themselves,Second-degree Price Discrimination,Two consumers Person 1 has low willin
11、gness-to-pay Person 1 has high willingness-to-pay Assume 0 MC,An Example,A,quantity,$/output unit,x10,x20,C,B,Charge A for x10 hoping to get person 1 Charge A+B+C for x20 hoping to get person 2 But person 2 is better off buying x10 and receiving a cs=B Fail to let consumers self-select themselves Pr
12、ofit=2A Can alternatively charge A+C for x20 to identify person 2 profit=2A+C,Second-degree Price Discrimination,A,quantity,$/output unit,x10,x20,C,B,Reduce x10 so A is reduced by a little but C can be increased by a lot。Persons 1 and 2 are still identified Profit is higher,Second-degree Price Discr
13、imination,A,quantity,$/output unit,MC(y),x1m,x20,C,B,Profit is maximized at x1m,Second-degree Price Discrimination,2nd-degree discrimination can also occur in the dimension of quality Different prices for different seats in a theater Different prices for economy class vs. business class seats in air
14、planes,Second-degree Price Discrimination,Third-degree Price Discrimination,Price paid by buyers in a given group is the same for all units purchased. But price may differ across buyer groups. Quality of goods is the same across groups. Can identify groups but no further identification within that g
15、roup.,Third-degree Price Discrimination,A monopolist manipulates market price by altering the quantity of product supplied to that market. So the question “What discriminatory prices will the monopolist set, one for each group?” is really the question “How many units of product will the monopolist s
16、upply to each group?”,Third-degree Price Discrimination,Two markets, 1 and 2. y1 is the quantity supplied to market 1. Market 1s inverse demand function is p1(y1). y2 is the quantity supplied to market 2. Market 2s inverse demand function is p2(y2).,Third-degree Price Discrimination,For given supply levels y1 and y2 the firms profit is What values of y1 and y2 maximize profit?,T
