UA EC 110 - Price Discrimination (2 pages)

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Price Discrimination

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Price Discrimination


Lecture number:
Lecture Note
University of Alabama
Ec 110 - Prin of Microeconomics
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ECON 110 1st Edition Lecture 23 Outline of Last Lecture I Comparison of Monopolies and Competitive Markets a Buyers and Sellers b Entry and Exit c Products in the Market d Price e Demand Curve f Supply Curve g Average Revenue and Price h Marginal Revenue and Price i Increasing Quantity Sold j Profit Maximizing Price Outline of Current Lecture I Price Discrimination a True monopolies b Common Areas c Arbitrage II Effects of Price Discrimination III Monopolies and Public Policies Current Lecture Price Discrimination Price 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 downwardsloping 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 lecture

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