Reference no: EM134001043

Assignment:

Objective: Discuss directly vs indirect price discrimination.

Direct price discrimination involves using an observable characteristic to infer something about the consumer's willingness to pay for the good. This separation does not need to be exact to be beneficial to the firm, nor does there need to be a distinct separation between high-value customers and low-value customers.

As long as there is a correlation between the group into which the customer has been placed and the value the customer places on the good, separating the market into subgroups can increase the profit of the firm. Once the groups are separated, then the price charged to each group is set as if they were the only customers in the market.

• Mr. and Mrs. Ward typically vote oppositely in elections and so their votes "cancel each other out." They each gain two units of utility from a vote for their positions (and lose two units of utility from a vote against their positions). However, the bother of actually voting costs each one unit of utility. Consider Nash's equilibrium. Suppose Mr. and Mrs. Ward agreed not to vote in tomorrow's election.
• Would such an agreement improve utility? Would such an agreement be an equilibrium? Now go out and search the internet for another example of Nash's equilibrium.
• Share your example with the class including the appropriate reference so your classmates can review it if necessary. Your example need not be business-related.