This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Pricing Strategies Uniform Pricing Non-Uniform Pricing Two-part tariff Quantity discounts Tie-in sales Menu Pricing Quality Discrimination Coupons Southwest Airlines

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Conditions for Price Discrimination Market Power Identify Consumers Prevent or limit resale Services Warranties Adulteration Transaction Cost Contractual Remedies Vertical Integration Government Intervention

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Canadian Web Pharmacy Sales Lipitor is cheaper in the Mexico and Canada than in US. Does this create problems for Pfizers pricing strategy? Does the US have any interest in protecting Pfizers ability to do this? Zocor patent expired in June 2006 What happened to Mercks stock price? What happened to Pfizers stock price? What happens to Pfizers ability to use price discrimination?

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Major industries using Aluminum IndustryElasticity of Demand for Aluminum Integrated by Alcoa? Cookware-1.6Yes Electric CableElastic (copper a substitute) Yes Automobile Parts-1.5Yes Iron and SteelInelastic (no substitutes) No AircraftInelastic (no substitutes at the time) No

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Perfect Price Discrimination MC = Inverse Demand: P= Q MR=1-.002Q Q

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Two Part Tariff MC = Inverse Demand: P= Q MR=1-.002Q

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Tie-in Sales and Bundling Expedia Streets Expedia Trip Planner Bundle Consumer$20$15$35 Professional$30$10$40 Table entries are reservation prices Strategy 1: Charge $20 for Streets and $10 for Planner Revenue = $60 Strategy 2: Charge $35 for the bundle. Revenue = $70

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Different Prices to Different Customers

Figure 9.2: 3 rd Degree Price Discrimination This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. $ Q1Q1 Q2Q2 Demand Group 2 MR for Group 2 Demand Group 1 MR for Group 1 MC = m

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Other Methods of Third Degree Price Discrimination Cut price on complaints L.A. Times Value of Time Rebates Willingness to wait Hard cover books

This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4 th edition, McGraw-Hill. Welfare Effects Perfect price discrimination Efficient Shifts surplus toward sellers Third Degree Price Discrimination Price > MC Inefficient allocation of goods between customers May make customers do inefficient things to earn the lower price.