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UA EC 110 - Price Discrimination
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ECON 110 1st EditionLecture 23Outline of Last Lecture I. Comparison of Monopolies and Competitive Marketsa. Buyers and Sellersb. Entry and Exitc. Products in the Marketd. Pricee. Demand Curvef. Supply Curveg. Average Revenue and Priceh. Marginal Revenue and Pricei. Increasing Quantity Soldj. Profit-Maximizing PriceOutline of Current Lecture I. Price Discriminationa. True monopolies b. Common Areasc. ArbitrageII. Effects of Price DiscriminationIII. Monopolies and Public PoliciesCurrent Lecture – Price DiscriminationPrice Discrimination is charging different prices to different customers for identical commodities. These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Monopolies are the usual practitioners of price discrimination, but a firm does not have to be a true monopoly to practice price discrimination; all a firm needs is a downward-sloping demand curve. For example, airlines, though none of them are monopolies by any means, all effectively practice price discrimination.- Common areas where we see price discrimination are experiences (such as a movie theatre or amusement park,) health care or personal services, transportation, and education.o Movie theatres charge less during the day because increased quantity sold automatically increases profit, since they already paid the fixed cost for the movie.o Education, especially from universities, cannot be resold or bartered, and is also not easily replaced, so they can charge whatever they want and change prices often.- Arbitrage, the process of buying a good in one market at a low price and selling it in another market at a higher price to profit from the price difference, is a strategy that stops firms from geographically price discriminating.Effects of Price discrimination- The customers who paid the lower price will benefit, while the customers who pay the higher price will not.- Ideally, the firms will benefit by increasing overall profit- Raises overall economic welfare by decreasing deadweight loss; however, it will all be producer surplus. There will be no consumer surplus because every consumer pays exactly what the value a product for.Public Policies and Monopolies…Sometimes the government steps in to control monopolies and their behaviors such as price discrimination; can you say Teddy Roosevelt? For example, the Sherman Antitrust Act was created to prevent artificial monopolies. But we’ll learn more about this next


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UA EC 110 - Price Discrimination

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