Price discrimination a Third Degree Price Discrimination Determining relative prices Recall MR=P(1+lEd) Then:MR1=B(1+1E1)=MR2=P2(1+1/E2) Chapter 11 Slide 26
Chapter 11 Slide 26 Price Discrimination ◼ Third Degree Price Discrimination ⚫ Determining relative prices ⚫ ( ) (1 1 ) (1 1 ) 1 1 MR1 P1 E1 MR2 P2 E2 MR P Ed = + = = + = + Then : Recall :
Price discrimination a Third Degree Price Discrimination Determining relative prices B(1+1/E2) 。AnOP2(1+1E1) o Pricing: Charge higher price to group witl a low demand elasticity Chapter 1 Slide 27
Chapter 11 Slide 27 Price Discrimination ◼ Third Degree Price Discrimination ⚫ Determining relative prices ⚫ ⚫ Pricing: Charge higher price to group with a low demand elasticity (1 1 ) (1 1 ) 1 2 2 1 E E P P + + And : =
Price discrimination a Third Degree Price Discrimination EXample: E,=-2& E2=-4 B(1-14) 3/4/1/2=15 (1-1/2) P, should be 1.5 times as high as P2 Chapter 11 Slide 28
Chapter 11 Slide 28 Price Discrimination ◼ Third Degree Price Discrimination ⚫ Example: E1 = -2 & E2 = -4 ⚫ ⚫ P1 should be 1.5 times as high as P2 3 4 1 2 1.5 (1 1 2) (1 1 4) 2 1 = = − − = P P
Third-Degree Price Discrimination S/Q Consumers are divided into two groups, with separate demand curves for each group MRT= mrit Mr, 2= AR MR MR2 MR, Quantity Chapter 11 Slide 29
Chapter 11 Slide 29 Third-Degree Price Discrimination Quantity D2 = AR2 MR2 $/Q MR D1 = AR1 1 Consumers are divided into two groups, with separate demand curves for each group. MRT MRT = MR1 + MR2
Third-Degree Price Discrimination S/Q MC=MR, at Q1 P1.o_- MC=MR Group 1: P,Q,; more elastic Group 2: P2Q2; more inelastic MRE=MC .Qr controlL MC DoE AR MR MR2 MR, D EARA I Q Quantity Chapter 11 Slide 30
Chapter 11 Slide 30 Third-Degree Price Discrimination Quantity D2 = AR2 MR2 $/Q MR D1 = AR1 1 MRT MC Q2 P2 QT •QT : MC = MRT •Group 1: P1Q1 ; more elastic •Group 2: P2Q2 ; more inelastic •MR1 = MR2 = MC •QT control MC Q1 P1 MC = MR1 at Q1 and P1