1. Monopolistic behavior
Lecture 21
Monopolistic behavior

2. Uniform pricing p y

3. TPS, CS, PS and DWL p y

4. Measurement of market power
How to measure market power?
Candidate 1:
Problem:
Candidate 2:

5. Elasticity and markup

6. Elasticity and Markup With MR=0, elasticity= Elastic part relevant

7. How Should a Monopoly Price?
The same price for each unit to every customer - uniform pricing.
Price discrimination – many different prices for the same good
Can price-discrimination earn a monopoly higher profits? How about efficiency?

8. Types of Price Discrimination
1st-degree: Prices may differ across output units and buyers.
2nd-degree: Prices may differ across output unit but not buyers. (E.g. bulk-buying discounts.)
3rd-degree: Prices may differ across buyers but not output units (student discounts)
Two part tariff

9. First-degree price discriminationy

10. First-degree Price Discrimination
gives a monopolist all of the possible gains-to-trade,
buyers are with zero surplus,
efficient amount of output.

11. Third-degree Price Discrimination
Market has segments - groups of buyers (seniors, students, adults, firms)
In each segment the same price
Prices different across market segments
Common in real life

12. Third-degree Price Discrimination
Example: individual buyers, firms
Secrets of happiness

13. Third-degree Price Discrimination
Why price is smaller?