Pricing Tactics: TWo-part Tariff and Peak-Load Pricing Chapter 13. Menu pricing Organization: Markets and strategies ② Wen cao
Slides Reference: Industrial Organization: Markets and Strategies © Wen Cao Pricing Tactics : Two-part Tariff and Peak-Load Pricing Chapter 13. Menu pricing
Chapter 13-Objectives Chapter 13. Learning objectives Be able to make a clear difference between two part tariff, menu pricing and peak-load pricing Understand how a monopolist sets above prices and under which conditions such pricing strategies lead to higher profits than uniform prIcing
© Wen Cao 2 Chapter 13 - Objectives Chapter 13. Learning objectives • Be able to make a clear difference between twopart tariff, menu pricing and peak-load pricing. • Understand how a monopolist sets above prices and under which conditions such pricing strategies lead to higher profits than uniform pricing. Chapter 13. Learning objectives • Be able to make a clear difference between twopart tariff, menu pricing and peak-load pricing. • Understand how a monopolist sets above prices and under which conditions such pricing strategies lead to higher profits than uniform pricing
Chapter 13- Two-Part Tariff Two-part Tariff vs Uniform Pricing ° Uniform Pricing All consumers pay same price A monopoly how to set price, given demand p=a-bg Can monopoly gain higher profit? TWO-part Tariff Price include fixed part+variable part(depends on g Real-life example Why firm uses two-part tariff? How to implement two-part tariff? e Wen Cao
Chapter 13 – Two-Part Tariff © Wen Cao 3 Two-part Tariff vs Uniform Pricing • Uniform Pricing • All consumers pay same price • A monopoly how to set price, given demand p=a-bq • Can monopoly gain higher profit? • Two-part Tariff • Price include fixed part+variable part (depends on q) • Real-life example • Why firm uses two-part tariff? • How to implement two-part tariff?
Chapter 13- Two-Part Tariff TwO-part Tariff °Two- part Tariff Consumer utility: Usm+2VQ Budget constraint:m+++p?sI r-φ-p+2y (133) Derived demand: p=vQi i.e. Q= (134) Firm's uniform pricing: K, capacity constraint (13) andq1=K, and hence x=√R Firm charges fixed fee only wr(引)=φs.r-φ+2R≥I=U (136) 丌2≡x(=如,P=0=2k>R=r(φ=0,P=1/√R)=n
Chapter 13 – Two-Part Tariff Two-part Tariff • Two-part Tariff • Consumer utility: • Budget constraint: • • Derived demand: • Firm’s uniform pricing: K, capacity constraint • Firm charges fixed fee only: © Wen Cao 4
Chapter 13- Two-Part Tariff TWo-part Tariff vs Uniform Pricing lope =-Pi U1 E Q e Wen cao
Chapter 13 – Two-Part Tariff © Wen Cao 5 Two-part Tariff vs Uniform Pricing • •