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