1. Lecture 15, Chapter 13 Price Discrimination and Perfect Price Discrimination

2. Lecture 15, Chapter 13 Price Discrimination  Definition:  Price discrimination is a policy of charging different prices on different units sold in order to increase profits.

3. Lecture 15, Chapter 13 Price Variation Versus Price Discrimination  Price discrimination in conditional on cost of production being the same for all customers  Not all price differences are the result of price discrimination. Costs of dealing with different customers are not always the same.

4. Lecture 15, Chapter 13 Conditions for Price Discrimination Successful price discrimination requires:  market power  customers that differ in their price elasticity of demand  ability to limit reselling. The third condition breaks down if resellers connect market segments by buying in the lower priced segment and reselling in the higher priced segment.

5. Lecture 15, Chapter 13 Price Discrimination There are three main types of price discrimination  (A) 1 st Degree: Perfect price discrimination charging the maximum price on every unit sold to every customer.

6. Lecture 15, Chapter 13 Perfect Price Discrimination  The perfect price discriminator charges the maximum price on every unit and gets all of the consumer’s surplus.  She carries out this strategy on every customer.

7. Lecture 15, Chapter 13 Figure 1—Perfect Price Discrimination

8. Lecture 15, Chapter 13 Comparison Between Different Market Forms  Perfect price discrimination takes all the consumers’ surplus and converts that into producer’s surplus.

9. fig O P1P1 D 200 P Q First-degree price discrimination

10. Lecture 15, Chapter 13 Perfect Price Discrimination

11. Lecture 15, Chapter 13 Types of Price Discrimination  (B) 2 nd Degree: Quantity discrimination charging different prices on different amounts, but does not distinguish between customers.

12. Lecture 15, Chapter 13 Types of Price Discrimination  (C) 3 rd Degree: Market Segmentation charging different classes of customers different prices for the same product.

13. fig O P1P1 D P2P2 150200 P Q Third-degree price discrimination

14. Lecture 15, Chapter 13 Chapter 13, Table 1—A Theater’s Profit Based On the Pricing Method

15. Lecture 15, Chapter 13 Comparison Between Different Market Forms  Figure 2 compares consumer’s and producer’s surplus for three market forms.  Perfect competition leaves consumers the most and takes the least.  Single price monopoly leaves consumers less and takes more.

16. Lecture 15, Chapter 13 Competition, Monopoly, and Perfect Price Discrimination