Second-degree Price discrimination Setting a uniform price is not optimal Too high a price would lose high volume consumer Too low a price would lost revenue from low volume consumer Coke example Mechanism: Set price for different volumes to let consumers identify themselves
Setting a uniform price is not optimal – Too high a price would lose high volume consumer. – Too low a price would lost revenue from low volume consumer. – Coke example. Mechanism： Set price for different volumes to let consumers identify themselves Second-degree Price Discrimination
An example Two consumers Person 1 has low willingness-to- pay Person 1 has high willingness-to pay Assume 0 Mc
Two consumers –Person 1 has low willingness-topay –Person 1 has high willingness-topay Assume 0 MC An Example
Second-degree Price discrimination Charge A for x, hoping to get person 1 Output Charge A+B+C for x 2 hoping to get person 2 unit But person 2 is better off buying x, and receiving a cs=B Fail to let consumers self-select themselves Profit=2A B Can alternatively charge A+C for x 2o to identify person 2 A profit=2A+C 0 0 quantity
A quantity $/output unit x1 0 x2 0 C B Charge A for x1 0 hoping to get person 1 Charge A+B+C for x2 0 hoping to get person 2 But person 2 is better off buying x1 0 and receiving a cs=B Fail to let consumers self-select themselves Profit=2A Can alternatively charge A+C for x2 0 to identify person 2 profit=2A+C Second-degree Price Discrimination
Second-degree Price discrimination Reduce x, so a is reduced by a little but S/output unit C can be increased by a loto Persons 1 and 2 are still identified Profit is higher B A 0 0 quantity
A quantity $/output unit x1 0 x2 0 C B Reduce x1 0 so A is reduced by a little but C can be increased by a lot。Persons 1 and 2 are still identified Profit is higher Second-degree Price Discrimination