1、Chapter Twenty-FiveMonopoly Behavior壟斷行為.How Should a Monopoly Price?So far a monopoly has been thought of as a firm which has to sell its product at the same price to every customer. This is uniform pricing.Can price-discrimination 差別定價(jià)earn a monopoly higher profits?.StructureFirst-degree price dis

2、criminationSecond-degree price discriminationThird-degree price discriminationBundlingTwo-part tariff.Types of Price Discrimination1st-degree: Each output unit is sold at a different price. Prices may differ across buyers.2nd-degree: The price paid by a buyer can vary with the quantity demanded by t

3、he buyer. But all customers face the same price schedule. E.g. bulk-buying discounts.Types of Price Discrimination3rd-degree: Price paid by buyers in a given group is the same for all units purchased. But price may differ across buyer groups.E.g., senior citizen and student discounts vs. no discount

4、s for middle-aged persons.First-degree Price DiscriminationEach output unit is sold at a different price. Price may differ across buyers.It requires that the monopolist can discover the buyer with the highest valuation of its product, the buyer with the next highest valuation, and so on.First-degree

5、 Price Discriminationp(y)y$/output unitMC(y)Sell the th unit for $.First-degree Price Discriminationp(y)y$/output unitMC(y)Sell the th unit for $ Later onsell the th unit for $.First-degree Price Discriminationp(y)y$/output unitMC(y)Sell the th unit for $ Later onsell the th unit for $ Finally sell

6、the th unit for marginal cost, $.First-degree Price Discriminationp(y)y$/output unitMC(y)The gains to the monopoliston these trades are:and zero.The consumers gains are zero.First-degree Price Discriminationp(y)y$/output unitMC(y)So the sum of the gains tothe monopolist on all trades is the maximump

7、ossible total gains-to-trade.PS.First-degree Price Discriminationp(y)y$/output unitMC(y)The monopolist gets the maximum possible gains from trade.PSFirst-degree price discriminationis Pareto-efficient.First-degree Price DiscriminationFirst-degree price discrimination gives a monopolist all of the po

8、ssible gains-to-trade, leaves the buyers with zero surplus, and supplies the efficient amount of output.Examples of 1st-degree Price DiscriminationAuction of antiqueCar salesFinancial aid in universitiesMay not be practicaldo not know willingness to paytoo costly.Non-linear pricingUnit price depends

9、 on quantity purchasedBulk discountSettingA seller does not know the willingness to pay by each individual buyer Consumers marginal willingness to pay declines with quantitySecond-degree Price Discrimination.Setting a uniform price is not optimalToo high a price would lose high volume consumer.Too l

10、ow a price would lost revenue from low volume consumer.Coke example.Mechanism： Set price for different volumes to let consumers identify themselvesSecond-degree Price Discrimination.Two consumersPerson 1 has low willingness-to-payPerson 1 has high willingness-to-payAssume 0 MCAn Example.Aquantity$/o

11、utput unitx10 x20CBCharge A for x10 hoping to get person 1Charge A+B+C for x20 hoping to get person 2But person 2 is better off buying x10 and receiving a cs=BFail to let consumers self-select themselves Profit=2A Can alternatively charge A+C for x20 to identify person 2 profit=2A+CSecond-degree Pri

12、ce Discrimination.Aquantity$/output unitx10 x20CBReduce x10 so A is reduced by a little but C can be increased by a lot。Persons 1 and 2 are still identifiedProfit is higher Second-degree Price Discrimination.Aquantity$/output unitMC(y)x1mx20CBProfit is maximized at x1mSecond-degree Price Discriminat

13、ion.2nd-degree discrimination can also occur in the dimension of qualityDifferent prices for different seats in a theaterDifferent prices for economy class vs. business class seats in airplanesSecond-degree Price Discrimination.Third-degree Price DiscriminationPrice paid by buyers in a given group i

14、s the same for all units purchased. But price may differ across buyer groups.Quality of goods is the same across groups.Can identify groups but no further identification within that group.Third-degree Price DiscriminationA monopolist manipulates market price by altering the quantity of product suppl

15、ied to that market.So the question “What discriminatory prices will the monopolist set, one for each group? is really the question “How many units of product will the monopolist supply to each group?.Third-degree Price DiscriminationTwo markets, 1 and 2.y1 is the quantity supplied to market 1. Marke

16、t 1s inverse demand function is p1(y1).y2 is the quantity supplied to market 2. Market 2s inverse demand function is p2(y2).Third-degree Price DiscriminationFor given supply levels y1 and y2 the firms profit is What values of y1 and y2 maximize profit?.Third-degree Price DiscriminationThe profit-max

17、imization conditions are.Third-degree Price Discriminationandsothe profit-maximization conditions areand.Third-degree Price DiscriminationMR1(y1) = MR2(y2) says that the allocation y1, y2 maximizes the revenue from selling y1 + y2 output units.E.g. if MR1(y1) MR2(y2) then an output unitshould be mov

18、ed from market 2 to market 1to increase total revenue.Third-degree Price DiscriminationThe marginal revenue common to bothmarkets equals the marginal production cost if profit is to be maximized.Third-degree Price DiscriminationMR1(y1)MR2(y2)y1y2y1*y2*p1(y1*)p2(y2*)MCMCp1(y1)p2(y2)Market 1Market 2MR

19、1(y1*) = MR2(y2*) = MCand p1(y1*) p2(y2*).Third-degree Price DiscriminationRecall thatandIn which market will the monopolist set the higher price?But,.Third-degree Price DiscriminationSoTherefore, only ifThe monopolist sets the higher price in the market where demand is least own-price elastic.Examp

20、les of 3rd-degree Price DiscriminationDiscounts to students, senior citizensBusiness travelers and vacationersGovernment and private-sector purchasersCoupons and rebatesFirst-run movies and dollar movieHardcover books and paperback books.BundlingTypes of consumersWord processorSpreadsheetType A12010

21、0Type B100120Willingness to pay for software components.Two Marketing PoliciesSell separately:Word processor: p=100, revenue=200Speadsheet; p=100, revenue=200BundlingSet p=220 for the bundleRevenue=440.Two-Part TariffsA two-part tariff is a lump-sum fee, p1, plus a price p2 for each unit of product

22、purchased.Thus the cost of buying x units of product isp1 + p2x.Two-Part TariffsShould a monopolist prefer a two-part tariff to uniform pricing, or to any of the price-discrimination schemes discussed so far?If so, how should the monopolist design its two-part tariff?.Two-Part Tariffs p1 + p2xQ: Wha

23、t is the largest that p1 can be?A: p1 is the “entrance fee so the largest it can be is the surplus the buyer gains from entering the market.Set p1 = CS and now ask what should be p2?.Two-Part Tariffsp(y)y$/output unitMC(y)Should the monopolistset p2 above MC?.Two-Part Tariffsp(y)y$/output unitCSShou

24、ld the monopolistset p2 above MC?p1 = CS.MC(y).Two-Part Tariffsp(y)y$/output unitCSShould the monopolistset p2 above MC?p1 = CS.PS is profit from sales.MC(y)PS.Two-Part Tariffsp(y)y$/output unitCSShould the monopolistset p2 above MC?p1 = CS.PS is profit from sales.MC(y)PSTotal profit.Two-Part Tariff

25、sp(y)y$/output unitShould the monopolistset p2 = MC?MC(y).Two-Part Tariffsp(y)y$/output unitShould the monopolistset p2 = MC?p1 = CS.CSMC(y).Two-Part Tariffsp(y)y$/output unitShould the monopolistset p2 = MC?p1 = CS.PS is profit from sales.MC(y)CSPS.Two-Part Tariffsp(y)y$/output unitShould the monop

26、olistset p2 = MC?p1 = CS.PS is profit from sales.MC(y)CSTotal profitPS.Two-Part Tariffsp(y)y$/output unitShould the monopolistset p2 = MC?p1 = CS.PS is profit from sales.MC(y)CSPS.Two-Part Tariffsp(y)y$/output unitShould the monopolistset p2 = MC?p1 = CS.PS is profit from sales.MC(y)CSAdditional profit from setting p2 = MC.PS.Two-Part TariffsThe monopolist maximizes its profit when using a two-part tariff by setting its per unit price p2 at marginal cost and setting its lump-sum fee p1 equal to Consumers Surplus.Two-Part TariffsA profit-maximizing two-part tariff gives