Price discrimination and bundling, economics, Microeconomics

Assignment Help:
We consider two regions A and B. Each market has the same size (i.e. number
of consumers) but differs in the willingness to pay for one unit of the good proposed
by the firm. On market i a consumer has a unit-demand for the good and her willingness
to pay is equal to Bi with i = A,B and with BA > BB. The firm incurs no cost.

1. The monopoly has perfect and verifiable information on consumer characteristics
(location and willingness to pay) and thus is able to price discriminate. Find the
optimal prices set by the monopoly in both regions. Is this pricing policy robust to
arbitrage if there is no transport cost between both regions?

2. What is the optimal price without price discrimination?
Assume now that BA < 2BB. Moreover, the firm may propose to consumers a
service in addition to the good. The valuation for that service is equal to s in both
regions. The transport cost of the service is infinite.

3. If the monopoly decides to price discriminate, determine the price for each
product in both regions. Is that pricing policy robust to arbitrage?
The monopoly introduces tie-in sales so that each consumer is now constrained to
buy the bundle "good plus service".

4. Determine the price of each bundle if the monopoly price discriminate. Show
that the discriminatory pricing policy is robust to arbitrage if and only if s < BA-BB.
Explain this result.

Related Discussions:- Price discrimination and bundling, economics

Objective probability, The Objective Probability -  100 explorations out...

The Objective Probability -  100 explorations out of which 25 successes and 75 failures -  Probability (Pr) of success = 1/4 and probability of failure = ¾ Given: -

Economic system, explain the fundamental task of economic system usin tomat...

explain the fundamental task of economic system usin tomatoes as an example

Intermediate microeconomics, show that the necessary and sufficient conditi...

show that the necessary and sufficient conditions for consumer equilibrium under both cardinal and ordinal utility theories are identical .

Indifference curves, Indifference Curves: Every consumption-leisure point,...

Indifference Curves: Every consumption-leisure point, (l; c), in the diagram is associated with a unique level of utility. The line II represents the individuals indifference curv

Lending operations of world bank, Lending Operations of World Bank: Re...

Lending Operations of World Bank: Resources of the Bank consist of the capital and borrowings. The capital of the bank is contributed by its 184 member-countries. Besides,

How do we obtain total cost curve, Total cost curve (TC) is obtained by add...

Total cost curve (TC) is obtained by adding up vertically total fixed cost and total variable cost curves because the total cost is sum of total fixed cost and total variable cost

Describe classical economics, Q. Describe Classical Economics? Classica...

Q. Describe Classical Economics? Classical Economics:Tradition of economics which began with Adam Smith and continued with other theorists including Thomas Malthus, David Ricar

Consumer choice - revealed preferences, Consumer Choice   * Decision mak...

Consumer Choice   * Decision making & Public Policy - Selecting from a non matching and matching grant to fund police expenditures

Demand for chips elastic, The demand schedule for computer chips is given i...

The demand schedule for computer chips is given in the table. Price (dollars per chip) Quantity demanded(millions of chips per year) 200

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd