Price Discrimination-A Primer

Selling at Different Prices

Sales at Different Prices

Deadweight Loss DWL = $30

Different Prices R = $150 DWL = $0

The Basic Demand Function D MR MC

The Basic Demand Function D MR MC P* Q*

DWL  CS The Basic Demand Function D MR MC P* Q*

 The Basic Demand Function D MR MC P* Q*

Price Discrimination Basics No Arbitrage –To sell to different people at different prices, you must be able to prevent re-sales. Identifying Customers –Or at least getting them to self-identify.

The Hatfields and McCoys Q H = 35 - p H Q M = 65 – p M

The Hatfields and McCoys Q H = 35 - p H Q M = 65 – p M

The Hatfields and McCoy's MC DMDM DHDH MR PMPM PHPH QMQM QHQH

The Hatfields and McCoy's MC DMDM DHDH MR PMPM PHPH QMQM QHQH

The Hatfields and McCoy's MC DMDM DHDH MR PMPM PHPH QMQM QHQH Q H = 35 - p H Q M = 65 – p M

The Hatfields and McCoy's 5 5 DMDM DHDH MR PMPM PHPH QMQM QHQH Q H = 35 - p H Q M = 65 – p M 60 30

The Hatfields and McCoy's 5 5 DMDM DHDH MR Q H = 35 - p H Q M = 65 – p M 60 30

The Hatfields and McCoy's 5 5 DMDM DHDH MR Q H = 35 - p H Q M = 65 – p M

When They Make Peace The Hatfield-McCoy feud is ancient history. If you tried this strategy today, McCoy’s would just buy at Hatfield Price.

When They Make Peace The Hatfield-McCoy feud is ancient history. If you tried this strategy today, McCoy’s would just buy at Hatfield Price. Moral: you must be able to prevent arbitrage.

When can you Discriminate? Children and Adults

When can you Discriminate? Children and Adults –Restaurants –Movies –Why stop at age 12? –Sesame Place

When can you Discriminate? Children and Adults Senior Citizens

When can you Discriminate? Children and Adults Senior Citizens Domestic and International Pricing

 Closer to our Goal? D MR MC P* Q*

End ©2003 Charles W. Upton