微观经济学英文课件：ch11 Pricing with Market Power

Pricing with Market Power11C H A P T E RCopyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.Fernando&Yvonn QuijanoPrepared by:Chapter 11:Pricing with Market Power2 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.CHAPTER 11 OUTLINE11.1 Capturing Consumer Surplus11.2 Price Discrimination11.3 Intertemporal Price Discrimination and Peak-Load Pricing11.4 The Two-Part Tariff11.5 Bundling11.6 AdvertisingChapter 11:Pricing with Market Power3 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.CAPTURING CONSUMER SURPLUS11.1Capturing Consumer SurplusFigure 11.1If a firm can charge only one price for all its customers,that price will be P*and the quantity produced will be Q*.Ideally,the firm would like to charge a higher price to consumers willing to pay more than P*,thereby capturing some of the consumer surplus under region A of the demand curve.The firm would also like to sell to consumers willing to pay prices lower than P*,but only if doing so does not entail lowering the price to other consumers.In that way,the firm could also capture some of the surplus under region B of the demand curve.price discrimination Practice of charging different prices to different consumers for similar goods.Chapter 11:Pricing with Market Power4 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2First-Degree Price Discrimination first-degree price discrimination Practice of charging each customer her reservation price.Additional Profit from Perfect First-DegreePrice DiscriminationFigure 11.2Because the firm charges each consumer her reservation price,it is profitable to expand output to Q*.When only a single price,P*,is charged,the firms variable profit is the area between the marginal revenue and marginal cost curves.With perfect price discrimination,this profit expands to the area between the demand curve and the marginal cost curve.variable profit Sum of profits on each incremental unit produced by a firm;i.e.,profit ignoring fixed costs.Chapter 11:Pricing with Market Power5 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2First-Degree Price DiscriminationFirst-Degree Price Discrimination in PracticeFigure 11.3Firms usually dont know the reservation price of every consumer,but sometimes reservation prices can be roughly identified.Here,six different prices are charged.The firm earns higher profits,but some consumers may also benefit.With a single price P4,there are fewer consumers.The consumers who now pay P5 or P6 enjoy a surplus.Perfect Price DiscriminationThe additional profit from producing and selling an incremental unit is now the difference between demand and marginal cost.Imperfect Price Discrimination*Chapter 11:Pricing with Market Power6 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2Second-Degree Price Discrimination second-degree price discrimination Practice of charging different prices per unit for different quantities of the same good or service.block pricing Practice of charging different prices for different quantities or“blocks”of a good.Second-Degree Price DiscriminationFigure 11.4Different prices are charged for different quantities,or“blocks,”of the same good.Here,there are three blocks,with corresponding prices P1,P2,and P3.There are also economies of scale,and average and marginal costs are declining.Second-degree price discrimination can then make consumers better off by expanding output and lowering cost.Chapter 11:Pricing with Market Power7 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2Third-Degree Price Discrimination third-degree price discrimination Practice of dividing consumers into two or more groups with separate demand curves and charging different prices to each group.Creating Consumer GroupsIf third-degree price discrimination is feasible,how should the firm decide what price to charge each group of consumers?We know that however much is produced,total output should be divided between the groups of customers so that marginal revenues for each group are equal.We know that total output must be such that the marginal revenue for each group of consumers is equal to the marginal cost of production.Chapter 11:Pricing with Market Power8 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2Third-Degree Price Discrimination third-degree price discrimination Practice of dividing consumers into two or more groups with separate demand curves and charging different prices to each group.Creating Consumer Groups(11.1)Chapter 11:Pricing with Market Power9 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2Third-Degree Price DiscriminationDetermining Relative Prices(11.2)Third-Degree Price DiscriminationFigure 11.5Consumers are divided into two groups,with separate demand curves for each group.The optimal prices and quantities are such that the marginal revenue from each group is the same and equal to marginal cost.Here group 1,with demand curve D1,is charged P1,and group 2,with the more elastic demand curve D2,is charged the lower price P2.Marginal cost depends on the total quantity produced QT.Note that Q1 and Q2 are chosen so that MR1=MR2=MC.Chapter 11:Pricing with Market Power10 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2Third-Degree Price DiscriminationDetermining Relative PricesNo Sales to Smaller MarketFigure 11.6Even if third-degree price discrimination is feasible,it may not pay to sell to both groups of consumers if marginal cost is rising.Here the first group of consumers,with demand D1,are not willing to pay much for the product.It is unprofitable to sell to them because the price would have to be too low to compensate for the resulting increase in marginal cost.Chapter 11:Pricing with Market Power11 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2Coupons provide a means of pricediscrimination.Studies show that only about 20 to 30 percent of all consumers regularly bother to clip,save,and use coupons.Rebate programs work the same way.Only those consumers with relatively price-sensitive demands bother to send in the materials and request rebates.Again,the program is a means of price discrimination.Chapter 11:Pricing with Market Power12 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2TABLE 11.1 Price Elasticities of Demand for Users versus Nonusers of CouponsPRICE ELASTICITYProduct NonusersUsersToilet tissue0.600.66Stuffing/dressing 0.71 0.96Shampoo 0.84 1.04Cooking/salad oil 1.22 1.32Dry mix dinners 0.88 1.09Cake mix 0.21 0.43Cat food 0.49 1.13Frozen entrees 0.60 0.95Gelatin 0.97 1.25Spaghetti sauce 1.65 1.81Creme rinse/conditioner 0.82 1.12Soups 1.05 1.22Hot dogs 0.59 0.77Chapter 11:Pricing with Market Power13 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.PRICE DISCRIMINATION11.2TABLE 11.2 Elasticities of Demand for Air TravelFARE CATEGORYElasticityFirst Class Unrestricted CoachDiscountedPrice 0.3 0.4 0.9Income 1.2 1.2 1.8Travelers are often amazed at the variety of fares available forround-trip flights from New York to Los Angeles.Recently,for example,the first-class fare was above$2000;the regular(unrestricted)economy fare was about$1700,and special discount fares(often requiring the purchase of a ticket two weeks in advance and/or a Saturday night stayover)could be bought for as little as$400.These fares provide a profitable form of price discrimination.The gains from discriminating are large because different types of customers,with very different elasticities of demand,purchase these different types of tickets.Chapter 11:Pricing with Market Power14 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.INTERTEMPORAL PRICE DISCRIMINATIONAND PEAK-LOAD PRICING11.3Intertemporal Price Discrimination intertemporal price discrimination Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time.peak-load pricing Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.Intertemporal Price DiscriminationFigure 11.7Consumers are divided into groups by changing the price over time.Initially,the price is high.The firm captures surplus from consumers who have a high demand for the good and who are unwilling to wait to buy it.Later the price is reduced to appeal to the mass market.Chapter 11:Pricing with Market Power15 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.INTERTEMPORAL PRICE DISCRIMINATIONAND PEAK-LOAD PRICING11.3Peak-Load PricingPeak-Load PricingFigure 11.8Demands for some goods and services increase sharply during particular times of the day or year.Charging a higher price P1 during the peak periods is more profitable for the firm than charging a single price at all times.It is also more efficient because marginal cost is higher during peak periods.Chapter 11:Pricing with Market Power16 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.INTERTEMPORAL PRICE DISCRIMINATIONAND PEAK-LOAD PRICING11.3Publishing both hardbound and paperback editions of a book allows publishers to price discriminate.Some consumers want to buy a new bestseller as soon as it is released,even if the price is$25.Other consumers,however,will wait a year until the book is available in paperback for$10.The key is to divide consumers into two groups,so that those who are willing to pay a high price do so and only those unwilling to pay a high price wait and buy the paperback.It is clear,however,that those consumers willing to wait for the paperback edition have demands that are far more elastic than those of bibliophiles.It is not surprising,then,that paperback editions sell for so much less than hardbacks.Chapter 11:Pricing with Market Power17 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.THE TWO-PART TARIFF11.4 two-part tariff Form of pricing in which consumers are charged both an entry and a usage fee.Single ConsumersTwo-Part Tariff with a Single ConsumerFigure 11.9The consumer has demand curve D.The firm maximizes profit by setting usage fee P equal to marginal cost and entry fee T*equal to the entire surplus of the consumer.Chapter 11:Pricing with Market Power18 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.THE TWO-PART TARIFF11.4Two ConsumersTwo-Part Tariff with Two ConsumersFigure 11.10The profit-maximizing usage fee P*will exceed marginal cost.The entry fee T*is equal to the surplus of the consumer with the smaller demand.The resulting profit is 2T*+(P*MC)(Q1+Q2).Note that this profit is larger than twice the area of triangle ABC.Chapter 11:Pricing with Market Power19 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.THE TWO-PART TARIFF11.4Many ConsumersTwo-Part Tariff with Many Different ConsumersFigure 11.11Total profit is the sum of the profit from the entry fee a and the profit from sales s.Both a and s depend on T,the entry fee.Therefore=a+s=n(T)T+(P MC)Q(n)where n is the number of entrants,which depends on the entry fee T,and Q is the rate of sales,which is greater the larger is n.Here T*is the profit-maximizing entry fee,given P.To calculate optimum values for P and T,we can start with a number for P,find the optimum T,and then estimate the resulting profit.P is then changed and the corresponding T recalculated,along with the new profit level.Chapter 11:Pricing with Market Power20 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.THE TWO-PART TARIFF11.4In 1971,Polaroid introduced its SX-70 camera.This camera was sold,not leased,to consumers.Nevertheless,because film was sold separately,Polaroid could apply a two-part tariff to the pricing of the SX-70.Why did the pricing of Polaroids cameras and film involve a two-part tariff?Because Polaroid had a monopoly on both its camera and the film,only Polaroid film could be used in the camera.How should Polaroid have selected its prices for the camera and film?It could have begun with some analytical spadework.Its profit is given by =PQ+nT C1(Q)C2(n)where P is the price of the film,T the price of the camera,Q the quantity of film sold,n the number of cameras sold,and C1(Q)and C2(n)the costs of producing film and cameras,respectively.Chapter 11:Pricing with Market Power21 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.THE TWO-PART TARIFF11.4Most telephone service is priced using a two-part tariff:a monthly access fee,which may include some free minutes,plus a per-minute charge for additional minutes.This is also true for cellular phone service,which has grown explosively,both in the United States and around the world.Because providers have market power,they must think carefully about profit-maximizing pricing strategies.The two-part tariff provides an ideal means by which cellular providers can capture consumer surplus and turn it into profit.Chapter 11:Pricing with Market Power22 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.THE TWO-PART TARIFF11.4Chapter 11:Pricing with Market Power23 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5 bundling Practice of selling two or more products as a package.To see how a film company can use customer heterogeneity to its advantage,suppose that there are two movie theaters and that their reservation prices for our two films are as follows:If the films are rented separately,the maximum price that could be charged for Wind is$10,000 because charging more would exclude Theater B.Similarly,the maximum price that could be charged for Gertie is$3000.But suppose the films are bundled.Theater A values the pair of films at$15,000($12,000+$3000),and Theater B values the pair at$14,000($10,000+$4000).Therefore,we can charge each theater$14,000 for the pair of films and earn a total revenue of$28,000.Chapter 11:Pricing with Market Power24 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Relative ValuationsWhy is bundling more profitable than selling the films separately?Because the relative valuations of the two films are reversed.The demands are negatively correlatedthe customer willing to pay the most for Wind is willing to pay the least for Gertie.Suppose demands were positively correlatedthat is,Theater A would pay more for both films:If we bundled the films,the maximum price that could be charged for the package is$13,000,yielding a total revenue of$26,000,the same as by renting the films separately.Chapter 11:Pricing with Market Power25 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Relative ValuationsReservation PricesFigure 11.12Reservation prices r1 and r2 for two goods are shown for three consumers,labeled A,B,and C.Consumer A is willing to pay up to$3.25 for good 1 and up to$6 for good 2.Chapter 11:Pricing with Market Power26 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Relative ValuationsConsumption Decisions When Products Are Sold SeparatelyFigure 11.13The reservation prices of consumers in region I exceed the prices P1 and P2 for the two goods,so these consumers buy both goods.Consumers in regions II and IV buy only one of the goods,and consumers in region III buy neither good.Chapter 11:Pricing with Market Power27 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Relative ValuationsConsumption Decisions When Products Are BundledFigure 11.14Consumers compare the sum of their reservation prices r1+r2,with the price of the bundle PB.They buy the bundle only if r1+r2 is at least as large as PB.Chapter 11:Pricing with Market Power28 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Relative ValuationsReservation PricesFigure 11.15In(a),because demands are perfectly positively correlated,the firm does not gain by bundling:It would earn the same profit by selling the goods separately.In(b),demands are perfectly negatively correlated.Bundling is the ideal strategyall the consumer surplus can be extracted.Chapter 11:Pricing with Market Power29 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Relative ValuationsMovie ExampleFigure 11.16Consumers A and B are two movie theaters.The diagram shows their reservation prices for the films Gone with the Wind and Getting Gerties Garter.Because the demands are negatively correlated,bundling pays.Chapter 11:Pricing with Market Power30 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Mixed Bundling mixed bundling Selling two or more goods both as a package and individually.pure bundling Selling products only as a package.Mixed versus Pure BundlingFigure 11.17With positive marginal costs,mixed bundling may be more profitable than pure bundling.Consumer A has a reservation price for good 1 that is below marginal cost c1,and consumer D has a reservation price for good 2 that is below marginal cost c2.With mixed bundling,consumer A is induced to buy only good 2,and consumer D is induced to buy only good 1,thus reducing the firms cost.Chapter 11:Pricing with Market Power31 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Mixed BundlingLets compare three strategies:1.Selling the goods separately at prices P1=$50 and P2=$90.2.Selling the goods only as a bundle at a price of$100.3.Mixed bundling,whereby the goods are offered separately at prices P1=P2=$89.95,or as a bundle at a price of$100.Chapter 11:Pricing with Market Power32 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Mixed BundlingMixed Bundling with Zero Marginal CostsFigure 11.18If marginal costs are zero,and if consumers demands are not perfectly negatively correlated,mixed bundling is still more profitable than pure bundling.In this example,consumers B and C are willing to pay$20 more for the bundle than are consumers A and D.With pure bundling,the price of the bundle is$100.With mixed bundling,the price of the bundle can be increased to$120 and consumers A and D can still be charged$90 for a single good.Chapter 11:Pricing with Market Power33 of 41Copyright 2009 Pearson Education,Inc.Publishing as Prentice Hall Microeconomics Pindyck/Rubinfeld,8e.BUNDLING11.5Bundling in PracticeMixed Bundling in PracticeFigure 11.19The dots in this figure are estimates of reservation prices for a representative sample of consumers.A company could first choose a price for the bundle,PB,such that a diagonal line