© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Price Discrimination:Potential Profits

William FisherFebruary 8, 2012

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Economic Conditions Confronting Seller

$

Quantity

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Marginal Cost

Economic Conditions Confronting Seller

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Marginal Cost

P(X)

X

Economic Conditions Confronting Seller

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

P(Y)

Y

Marginal Cost

P(X)

X

Economic Conditions Confronting Seller

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

P(Y)

Y

Marginal Cost

P(X)

X

P(Z)

Z

Economic Conditions Confronting Seller

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

P(Y)

Y

Marginal Cost

Demand

P(X)

X

P(Z)

Z

Economic Conditions Confronting Seller

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

P(Y)

Y

Marginal Cost

Demand

P(X)

X

P(Z)

Z

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

P(Y)

Y

Marginal Cost

Demand

P(X)

X

P(Z)

Z

Perfect Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

P(Y)

Y

Marginal Cost

Demand

P(X)

X

P(Z)

ZProfit-maximizing output

“Monopoly Profits”

Perfect Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

No Price Discrimination

$

Quantity

Demand

CG

H

Marginal Cost

O

A

I

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Demand

CG

H

Marginal Cost

Marginal Revenue

O

A

I

No Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Demand

B

C

D

E

F

G

H

Marginal Cost

Marginal Revenue

O

A

I

No Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Demand

B

C

D

E

F

G

H

Marginal Cost

Profit-maximizing output

Prof

it-m

axim

izin

g pr

ice

Marginal Revenue

O

A

I

No Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Demand

B

C

D

E

F

G

H

Marginal Cost

Profit-maximizing output

Prof

it-m

axim

izin

g pr

ice

Monopoly Profits

Marginal Revenue

O

A

I

1

No Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Demand

B

C

D

E

F

G

H

Marginal Cost

Profit-maximizing output

Prof

it-m

axim

izin

g pr

ice

Monopoly Profits

O

A

I

1

2

Consumer Surplus

No Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Demand

B

C

D

E

F

G

H

Marginal Cost

Profit-maximizing output

Prof

it-m

axim

izin

g pr

ice

Monopoly Profits

O

A

I

1

2

3

Consumer Surplus

Deadweight Loss (foregoneconsumer surplus)

E

No Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Quantity

Marginal Cost

Demand

“Monopoly Profits”

Perfect Price Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

Demand

“Monopoly Profits”

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

Demand

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

Demand

Seller estimates that each buyer will be able and willing to spend at least this much

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

Demand

Seller estimates that each buyer will be able and willing to spend at least this much -- and charges them that much

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

DemandRevenue

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

DemandRevenue

Cost Cost

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

DemandProfit

Cost Cost

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

DemandProfit

Cost CostCost Cost

Consumer Surplus

Deadweight Loss

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Suppose the seller had imperfect information about each buyer...

$

Quantity

Marginal Cost

DemandProfit

Cost Cost

Consumer Surplus

Deadweight Loss

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

$

Marginal Cost

Demand

Cost Cost

Consumer Surplus

Deadweight Loss

First Degree

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Second and Third-DegreePrice Discrimination

Seller separates buyers into two groups

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

O 1 2 3

$

1

2

3

4

5

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

O 1 2 3

$

1

2

3

4

5

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

1235 4Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

1235 4Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

1235 4Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

1235 4Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

MR1235 4

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

MR1235 4

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

MR1235 4

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

MR1235 4

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

MR1235 4

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

MR1235 4

Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

MR

Consumer Surplus: $56,250

Profit: $112,500

Deadweight loss: $56,250

1235 4Q(x100,000)

Second and Third-DegreePrice Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR

Profit: $200,000

Deadweight loss: $100,000

Consumer Surplus: $100,000

Q(x100,000)

Market B

MC

1235 4MR

Consumer Surplus: $56,250

Profit: $112,500

Deadweight loss: $56,250

Q(x100,000)

Price Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Market B

MC

1235 4MR

Consumer Surplus: $156,250

Profit: $312,500

Deadweight loss: $156,250

Q(x100,000)

Price Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Market B

MC

1235 4MR

Consumer Surplus: 250,000

Profit: $250,000

Deadweight loss: $125,000

Q(x100,000)

No Price Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Market A

MC

O 1 2 3

$

1

2

3

4

5

MR Q(x100,000)

Market B

MC

1235 4MR

Consumer Surplus: 250,000

Profit: $250,000

Deadweight loss: $125,000

Q(x100,000)

No Price Discrimination

Sunday, February 12, 12

© 2012, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Sunday, February 12, 12

October 30, 2011

© 2011, William Fisher. This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 2.5 License.

Sunday, February 12, 12