microeconomics Market Power∶ Monopoly and Monopsony.pptVIP

PRICE DISCRIMINATION 11.2 TABLE 11.1 Price Elasticities of Demand for Users versus Nonusers of Coupons PRICE ELASTICITY Product Nonusers Users Toilet tissue ?0.60 ?0.66 Stuffing/dressing ?0.71 ?0.96 Shampoo ?0.84 ?1.04 Cooking/salad oil ?1.22 ?1.32 Dry mix dinners ?0.88 ?1.09 Cake mix ?0.21 ?0.43 Cat food ?0.49 ?1.13 Frozen entrees ?0.60 ?0.95 Gelatin ?0.97 ?1.25 Spaghetti sauce ?1.65 ?1.81 Creme rinse/conditioner ?0.82 ?1.12 Soups ?1.05 ?1.22 Hot dogs ?0.59 ?0.77 PRICE DISCRIMINATION 11.2 TABLE 11.2 Elasticities of Demand for Air Travel FARE CATEGORY Elasticity First Class Unrestricted Coach Discounted Price ?0.3 ?0.4 ?0.9 Income 1.2 1.2 1.8 Travelers are often amazed at the variety of fares available forround-trip flights from New York to Los Angeles. Recently, for example, the first-class fare was above $2000; the regular (unrestricted) economy fare was about $1700, and special discount fares (often requiring the purchase of a ticket two weeks in advance and/or a Saturday night stayover) could be bought for as little as $400. These fares provide a profitable form of price discrimination. The gains from discriminating are large because different types of customers, with very different elasticities of demand, purchase these different types of tickets. INTERTEMPORAL PRICE DISCRIMINATIONAND PEAK-LOAD PRICING 11.3 Intertemporal Price Discrimination ● intertemporal price discrimination Practice of separating consumers with different demand functions into different groups by charging different prices at different points in time. ● peak-load pricing Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high. Intertemporal Price Discrimination Figure 11.7 Consumers are divided into groups by changing the price over time. Initially, the price is high. The firm captures surplus from consumers who have a high demand for the good and who are unwilling to wait to buy