First Degree Price Discrimination

1
First Degree Price Discrimination

First Degree Price Discrimination from a welfare
point of view. Is it efficient? Is everybody
better off?
MC
P
D
MR
Q
2

• To price discriminate the monopolist must be able
  to prevent resale. To practice first degree price
  discrimination requires more information than any
  real firm has.

3
Monopoly in one Market and Competition in Another

MC
Pcity1
P
Pcity2
MR city2
D
MR city1
Q
Qo
Qcity1
Qtotal
4
Price DiscriminationA Monopolist in Two Markets
MC
Pa
Pc
MR
MRc
MRa
Dc
Da
Qa
Qc
QaQc
Qa
Qc
5
MRa
P0
P1
MR
MRc
6
Elasticities and Price Discrimination

• MRaPa(1-1/ha) Pc(1-1/hc)MRc
• If hcha then Pc
• The group with a more elastic demand is charged a
  lower price. The monopolist charges lower prices
  to price sensitive consumers

7
Examples of Price Discrimination

• Rebates Coupons
• Priceline.com (tickets non-transferable)
• Sequential releases of movies (Theaters, DVD,
  Cable, air TV).