First-degree Price Discrimination Output unit So the sum of the gains to the monopolist on all trades is the maximum possible total gains-to-trade PS Mc(y) ply y y
First-degree Price Discrimination p(y) y $/output unit MC(y) y So the sum of the gains to the monopolist on all trades is the maximum possible total gains-to-trade. PS
First-degree Price Discrimination Output unit The monopolist gets the maximum possible gains from trade. PS Mc(y) ply y y First-degree price discrimination is Pareto-efficient
First-degree Price Discrimination p(y) y $/output unit MC(y) y The monopolist gets the maximum possible gains from trade. PS First-degree price discrimination is Pareto-efficient
First-degree Price Discrimination First-degree price discrimination gives a monopolist all of the possible gains-to-trade, leaves the buyers with zero surplus, and supplies the efficient amount of output
First-degree Price Discrimination First-degree price discrimination gives a monopolist all of the possible gains-to-trade, leaves the buyers with zero surplus, and supplies the efficient amount of output
Examples of 1st-degree Price Discrimination Auction of antique Car sales Financial aid in universities May not be practical do not know willingness to pay -too costly
Examples of 1st-degree Price Discrimination Auction of antique Car sales Financial aid in universities May not be practical –do not know willingness to pay – too costly
Second-degree Price discrimination Non-linear pricing Unit price depends on quantity purchased Bulk discount Setting A seller does not know the willingness to pay by each individual buyer Consumer's marginal willingness to pay declines with quantity
Non-linear pricing – Unit price depends on quantity purchased – Bulk discount Setting – A seller does not know the willingness to pay by each individual buyer – Consumer’s marginal willingness to pay declines with quantity Second-degree Price Discrimination