microeconomics
model assmptions for collusion and cartels
- firms make identical products -industry set their Q and P together, no firm lies
when to use third degree price discrimination
-Ability to set prices. Some market power. -Ability to segment different classes of consumers (e.g. rail card to prove you are a senior citizen) -Ability to prevent resale. E.g. stop adults using student tickets.
model assumptions for bertrand competition with Identical goods
-firms sell identical products -the firm compete by choosing the price at which they sell their products -the firms set their prices simulatneously
quantity discount
A quantity discount is an incentive offered to a buyer that results in a decreased cost per unit of goods or materials when purchased in greater numbers.
two-part tariffs
A two-part tariff (TPT) is a pricing technique in which the price of a product or service is composed of two parts - a lump-sum fee as well as a per-unit charge.
block pricing
Block pricing is a pricing strategy in which identical products are packaged together in order to increase profits by forcing customers to make an all or none decision. By packaging the product and selling it as one unit the firm earns more than if it sold all of the units at a simple per unit price.
first degree price discrimination
First-degree price discrimination, alternatively known as perfect price discrimination, occurs when a firm charges a different price for every unit consumed. The firm is able to charge the maximum possible price for each unit which enables the firm to capture all available consumer surplus for itself
Nash equilibrium
an equilibrium in which each firm is doing the best it can conditional on the actions taken by its competitors
third degree price discrimination
Third Degree Price Discrimination involves charging a different price to different groups of consumers for the same good. These groups of consumers can be identified by particular characteristics such as age, sex, location, time of use.
versioning
Versioning is a business practice in which a company produces different models of the same product, and then charges different prices for each model. ... In this way, the business is attempting to attract higher prices based on the value a customer perceives.
price discrimination
a practice of charging different prices to different customers for the same product
second degree price discrimination
a pricing strategy in which customers pick among a variety of pricing options offered by the firm
prisoner's dilemma
a situation in which the Nash equilibrium outcome is worse for all involved than another outcome
mixed bundling
a type of bundling where the firm simultaneously offers customers the choice of buying two or more products separately or as a bundle
first mover advantage
in stackelberg competition, the advantage gained by the initial firm in setting its production quantity
cartel or collusion
oligopoly in which firms coordinate and collectively act as a monopoly to gain monopoly profits
incentive compatibility
the requirement under an indirect price-discrimination strategy that the price offered to each customer group is chosen by that group
Oligopoly with differentiated goods: bertrand competition
-not the same product - chooses price at which it sells its product -set price simultaneously
Cournot Assumptions
same product firms compete by choosing Q to produce all goods sell for the same price firms choose Q at the same time
Stackelberg Competition Assumptions
sell same product compete by choosing Q to produce all goods sell for the same price firms do NOT pick quantity simultaneously.
when can a firm pursue a price strategy
the firm must have market power and prevent resale
bundling
the firm sells two or more products together at a single price
Cournot competition
oligopoly model in which each firm chooses its production quantity
Bertrand competition
oligopoly model in which each firm chooses the price of its product
Stackelberg Competition
oligopoly model in which firms make production decisions sequentially