Beruflich Dokumente
Kultur Dokumente
10/10/2015
www.tbs-education.fr
Uniform pricing
Price Discrimination:
First Degree
Second Degree
Third Degree
Bundling
Dynamic Price Discrimination
2015
2015
Price p
p0
p1
D1
q0
q1
Quantity q
2015
Price-sensitivity of consumers
5
Elasticity
Demand price elasticity is the ratio of a relative quantity
variation to a relative price variation, in absolute value (i.e. an
elasticity is always positive even if demand decreases with price)
= |(Q/Q) / (P/P)|
If the price relative variation is 1% (P/P = 1), the relative
quantity variation is Q/Q %
If 0 < < 1, demand is inelastic: a price increase of 1% reduces
the volume by less than 1%
If 1 < , demand is elastic and an increase in price by 1%
reduces the volume sold by more than 1%
Managerial Economics - MBA (c) M. Urdanoz (Toulouse Business School)
2015
Elasticity
Demand price elasticity is the ratio of a relative quantity
variation to a relative price variation, in absolute value (i.e. an
elasticity is always positive even if demand decreases with price)
= |(Q/Q) / (P/P)|
If the price relative variation is 1% (P/P = 1), the relative
quantity variation is Q/Q %
If 0 < < 1, demand is inelastic: a price increase of 1% reduces
the volume by less than 1%
If 1 < , demand is elastic and an increase in price by 1%
reduces the volume sold by more than 1%
Managerial Economics - MBA (c) M. Urdanoz (Toulouse Business School)
2015
Price p
p0
p 1
p1
q 1
q0
D1
q1
Quantity q
2015
2015
Example: Railroads
9
Author
Year of
Publication
Behrens and
Pels
2009
Wardman
Market
LondonParis
Price Elasticity
Short run
Long run
-0.41 -0.56
2006
UK
Ivaldi and
Vibes
2005
CologneBerlin
-0.99
-1.21 -1.29
Asteriou et al.
2005
UK
-0.18 -0.2
Van Vuuren et
Rietveld
2002
Netherland
Wardman et al.
1996
UK
-0.7 -1.01
-1.37
-0.59
Goodwin et al.
1992
UK
-0.65 -0.79
De Rus
1990
Spain
-0.18 -0.41
Ben-Akiva &
Morikawa
1990
Netherland
-0.15 -1.50
Owen and
Phillips
1987
UK
-0.69
-1.08
-1.08
2015
2015
2015
Price P
P0
Decrease in
revenue
R / Q = P1 (P / Q ) x Q0 < P1
What is the variation of the cost of production,
relatively to a production increase? Price to fix?
Demand
P
P1
Increase in
revenue
Q0
Q1
Quantity Q
Q
Managerial Economics - MBA (c) M. Urdanoz (Toulouse Business School)
2015
Price ()
Demand
100
Marginal revenue
>1
=1
50
<1
0
0
5000
10000
Quantity
(units)
2015
MR vs MC
14
2015
Price ()
100
Demand
Marginal revenue
55
Monopoly Marginal cost
10
0
4500
10000
Quantity
(units)
P M MC M 1
=
PM
P M = MC M
Monopoly Equilibrium
Managerial Economics - MBA (c) M. Urdanoz (Toulouse Business School)
1
2015
Competitive pricing
16
Price ()
100
Competitive Demand
P0
P1
Competitive Supply
Competitive Equilibrium
10
0
Q0
Q1
9000 10,000
Quantity
(units)
2015
Welfare
17
2015
Market power
18
i =1
2
i
i =1
2015
19
2015
Introduction
20
2015
10
Requirements:
21
Is it legal?
Market Power
Firm needs information on demand: required
information varies with type of price discrimination
Instruments: different types of price discrimination
Limits: No resale/arbitrage possibilities
Goods: taxes, transportation costs, law
Services: train/air tickets
Managerial Economics - MBA (c) M. Urdanoz (Toulouse Business School)
2015
Introduction
22
2015
11
2015
2015
12
2015
2015
13
Price ()
Price ()
PARTICIPATION CONSTRAINTS:
Fee paid by C1 lower than A1,
100
Max.
Fee A2
Max.
Fee A1
50
10
0
40
0
10
50
Quantity
(units)
0
0
90
100
Quantity
(units)
2015
Examples of characteristics
age,
employment status (including student),
club membership,
Managerial Economics - MBA (c) M. Urdanoz (Toulouse Business School)
2015
14
2015
2015
15
Iphone 5
31
2015
2015
32
16
33
2015
2015
34
17
35
2015
2015
36
18
2015
2015
19
2015
Welfare
40
2015
20
2015
2015
21
Price ()
Price ()
100
Max.
Fee A2
Max.
Fee A1
50
Unit production cost of P
10
Quantity
(units)
0
40
0
10
50
0
90
100
Quantity
(units)
2015
Price ()
100
Price ()
Max.
Fee A2
Min.
payoff
of C1
Max. Fee
paid by C1
50
10
0
40
0
10
50
Quantity
(units)
0
0
90
100
Quantity
(units)
2015
22
2015
2015
23
Price ()
Max. Fee
A2
100
Min. payoff
of C1 under
T2
Price ()
50
Variable profit on C2
20
10
Quantity
(units)
0
30
0
20 = w2
10 = w1
0
0
80 90 100
50
Gain for C1 if he buys
at w1=10 instead of w2
= 20. How large A1?
Quantity
(units)
Loss on C2 =
(40 10) x
(20 10)/2
as this
amount was
obtained in
fee A2 in the
previous
tariff with
unit price w
= c for2015
i=1,2
2015
24
Optimal tariffs
49
Optimum:
Customer C2 (low demand consumer) is charged his
maximum willingness to pay
Customer C1 (high demand consumer) is charged the
highest price that makes him choose tariff 1 rather than
tariff 2
2015
Bundling
50
2015
25
Bundling
51
2015
Bundling
52
vA
vA
Consumers
buying A
only
Consumers
buying A
and B
Consumers
buying A
only
Consumers
buying A
and B
pA
pA
Consumers
buying B
only
Consumers
not buying
pB
Consumers
not buying
vB
Consumers buying
B only
pB
vB
2015
26
Bundling
53
2015
Sum of
valuations
Mr Pink
11
Mr Green
2015
27
55
2015
2015
56
28
2015
2015
29
Strategies
Your price today gives information to the action of your
competitor tomorrow
INFORMATION!
2015
Dynamic demand
60
2015
30
Durable goods
61
2015
Durable goods
62
P1
MR(Q)
c
Q1
2015
31
Durable goods
63
Time 2
P
Q1
Q
Residual Demand
2015
Durable goods
64
Time 2
P
P2
c
Q1
Q2
2015
32
Time 3, 4, 5N
P
P1
P2
P3
PP4
5
Q1
Q2 QQ
3Q
45
2015
Year 3, 4, 5N
P
P1
P2
PN=c
Q1
Q2
QN=Qc
2015
33
2015
Coase conjecture
68
2015
34
2015
2015
70
35
t
2
t
n
i =1
2015
71
F * = n * i =1 ci
2015
72
36