to print, choose “file” then “print” then click box at lower left that says “pure black...
Post on 26-Dec-2015
220 Views
Preview:
TRANSCRIPT
Economics 153
Economics of the Internet
Ward Hanson
Greg Rosston
T.A.: Lori Parcel
http://www.wardhanson.com/econ153
Economics 153 Today
Goals for the course Syllabus Microeconomic review
Thursday Internet Infrastructure – Readings in syllabus
Elasticity Own-price elasticity
Inelastic d > -1 (between zero and -1)
Elastic d < -1
Firm vs. Market
0
0
0
0
Q
P
P
Q
Elasticity Cross-price elasticity
Substitutes 01 < 0
Complements 01 > 0
Where does firm produce?
0
1
1
0
QP
P
Q
Review Exercises Show the elastic and inelastic portions of
linear demand curve
Graphically and mathematically show In what portion of demand curve firm will operate. Why other portions don’t maximize profit.
Competition Assumptions necessary
What happens when those are violated?
What happens when costs change?
What happens when demand changes?
Double Marginalization vs. Selling Direct
Internet leads many manufacturers (for example: Tivo, HP) to think about selling direct to consumers.
Situation 1: Sell direct to consumers. Situation 2: Set wholesale price, with retail
price set by a retailer.
Manufacturer + retailer: One firm’s price is another’s cost
P
Q
D
MR
Qm
Pw
MCr
Tivo can’t control retail price, can’t capture as much profit, retail price is too high. Monopoly retailer (say, Best Buy) gets substantial profit.Pr
MCW
MCd(scenario 1)
(scenario 2)
Individual vs. Market Demand Previously considered market demand
P
Q
D
total demand
Demand is a mixture of individualdemands, some single unit and some multi-unit.Here, one person might buy 1 unit if price is high and 2 if price is lower.
Individual Demand Curve: Discrete
A single customer’s demand (e.g. CDs).
P
Q
D
One individual’s demand
Here demand is unit by unit, tracing out an individual demand curve.
WTP 1 unit: WTP(1)WTP 2nd unit: WTP(2) – WTP(1)…
Individual Demand Curve: Continuous Again just a single individual, but a continuous
range of quantity (e.g. gasoline)P
Q
D
One individual’s demand
Multi-part Pricing What if a firm can charge both a price per
unit p and a membership fee F ? Does it make more money? Why? Is it more efficient?
Consumer Surplus Area above market price, below demand.
Qd=0 – 1*P (Simple linear case)
P
Q individual
D
How would we calculate that?
Why would we calculate that?
P max
P market
Consumer Surplus Area above market price, below demand.
Qd=0 – 1*P (Simple linear case)
P
Q individual
D
P max
P market
*2
Base Height
(only for linear demand)
Consumer Surplus Area above market price, below demand.
P
Q individual
D
P max
P market
00 1max 1
20
1
( )( )*( )2 2
211 02 *( 2 )
market marketmarket
market
p pQ p p
marketp p
Price up, consumer surplus down.
10 20 30 40 50
500
1000
1500
2000
2500
0 1( 100, 2)
consumersurplus
price
The perfect monopoly Charge EACH individual the marginal cost
per unit, but a fee F equal to their surplus.
P
Q individual
D
P max
P market MC
Personal pricing, Rhapsody subscription
Game Theory
(-5, -5) (-10, -1)
(-1, -10) (-3, -3)
Confess Don’t Confess
Confes
sD
on’t
Player 1
Player
2
Internet Broadband Version
(5, 5) (10, -5)
(-5, 10) (3, 3)
Current speed Triple speed
Curre
ntT
riple
SBC’s DSL
Com
cast Cable
Modem
top related