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

Tariff, Tariff: A tariff is a tax imposed on the purchase of imports. It is...

Tariff: A tariff is a tax imposed on the purchase of imports. It is generally imposed in order to stimulate more domestic production of the product in question (rather than meeting

Explain abput capitalist class, Q. Explain abput Capitalist Class? Capi...

Q. Explain abput Capitalist Class? Capitalist Class:Group of individuals (which represents just a couple of percent of population in advanced capitalist countries) which contro

represent the effect of an proportional tax on labor income, 1. Consider a...

1. Consider an individual facing a wage rate w . There's a total of 100 hours available for work or leisure in a week. (a) Represent his budget constraint graphically (b)

Income and substitution effects, Income and Substitution Effects A fall...

Income and Substitution Effects A fall in price of a good has the two effects: Substitution & Income -Substitution Effect Consumers will tend to buy more of the good

Help PLease, In an essay of at least four well-developed paragraphs, discus...

In an essay of at least four well-developed paragraphs, discuss U.S. economic policy. Be sure to include the following information in your essay: Compare and contrast the economi

What is the difference between concept and assumption, What is the differen...

What is the difference between 'concept' and 'assumption'?  These two terms are very dissimilar. The term 'concept' refers to an idea or abstract principle. For instances, forc

Illustrate the economic growth, Illustrate the Economic Growth Up until...

Illustrate the Economic Growth Up until 1800 growth rates of human populations were glacial. Population growth between 5000 B.C. and 1800 averaged less than one-tenth of a perc

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