Econ 202 - Module 10

perfect price discrimination

charging each customer a price equal to their maximum willingness to pay

when a company practices price discrimination, it will keep adding customers until the

company's marginal cost = the last customer's marginal benefit

Five Competitive Forces

existing competitors, potential competitors, competition from substitutes, bargaining power of buyers, bargaining power of buyers

market power

extent the to which a seller can charge a higher price without losing many sales to competing businesses

imperfectly competitive companies _____ the discount effect

face

oligopoly competition

few competitors, same or differentiated products, some market power, imperfect competition a firm demand curve is the market demand curve

If a monopolist engages in perfect price discrimination

it produces the efficient quantity of output

the competitive forces in a market largely determine the _____ of the companies in the market

long-term profitability

monopolistic competition

many competitors, differentiated product, some market power, imperfect competition a downward-sloping firm demand curve

perfect competition

many competitors, same products, least market power basically flat demand curve - horizontal line price takers firms can easily enter or exit

following the rational rule, the maximum economic surplus occurs when

marginal benefits equal marginal costs

a firm's ability to raise its product price without losing many customers to competing businesses exemplifies

market power

monopoly

no competitors, unique products, most market power

the threat of potential substitutes is high when the substitutes

offer greater value for their price than the original product

when the hurdle method is used to price a product across buyers

only those who overcome the obstacle that the seller specifies will get a lower price

which statement describes a monopoly?

A single firm produces a product with no close substitutes and control over the market price.

the negative outcomes of market power

smaller quantity higher costs larger profits

in the long run, the number of sellers and the profit in a market are both affected heavily by the ______ in the market

strength of the barriers to entry

hurdle method of price discrimination

the practice by which a seller offers a discount to all buyers who overcome some obstacle

why would a seller choose the hurdle method instead of group pricing to price discriminate?

the seller cannot find a verifiable, hard-to-change characteristic on which to base group segmentation

customers would be less loyal and more price sensitive in which situation?

the switching costs are low

in which situation would a business's profits be most threatened by the bargaining power of customers?

there is only one customer, who represents the entire market demand

market power leads businesses to

Charge a higher price Sell a smaller quantity Earn larger profits Survive with inefficiently high costs

when setting prices for different groups of customers, a manager should charge higher prices for groups that

value the product more

when would a monopoly in a particular industry be preferred to competition within that industry?

when it would be less costly for one firm rather than many firms to provide a good, as in a natural monopoly

government policies that would create a barrier to entry in a market

-require only companies with a license to produce the specific product can sell it -require that all versions of the product for sale are subject to extensive safety testing -granting of a patent to the developer of the product

marginal revenue

The addition to total revenue you get from selling one more unit equals output effect minus discount effect

Under the Five Forces framework, how can the market power of customers impact a seller's profitability?

customers with market power can use their leverage to lower the selling price that sellers charge

consumer surplus will _____ when a monopolist goes from single-price monopoly to perfect price discrimination

decrease

steps for segmenting customers into groups

divide the consumers into groups whose demand differs give discounts to chosen groups based on identifiable characteristics base discounts on characteristics that are hard to change

perfectly competitive companies ______ the discount effect

do not face