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

Indifference curve, explain the properties of indifference curve with the h...

explain the properties of indifference curve with the help of diagrams?

Differentiate between economic development and growth, Problem: i) Diff...

Problem: i) Differentiate between economic development and economic growth. ii) Describe carefully how, using the expenditure approach, national income is calculated. ii

Unions, Unions are Organizations of working people which aim to bargain col...

Unions are Organizations of working people which aim to bargain collectively with employers in order to improve workers' bargaining power, regulate working conditions and raise wag

Fit a simple linear regression model to the data, 1. Refer to the data in t...

1. Refer to the data in the file "asm2Q1.xls" on the annual number of fatalities (FATALS, y ) from gas and dust explosion in coal mines for the years 1915 to 1978 and the number o

Healthcare economics, #quesExamine the expenditure trends over the last 40 ...

#quesExamine the expenditure trends over the last 40 years. What are the direction and magnitude of changes in spending in and between these various categories (with the exception

Arbitrage pricing theory, Arbitrage pricing theory is between one of two in...

Arbitrage pricing theory is between one of two influential economic theories of how assets are formed or priced in the financial markets and the other model is the capital asset pr

Other elasticities of supply and demand, Elasticities of supply and demand ...

Elasticities of supply and demand Other Demand Elasticities           – Income elasticity of demand calculates the percentage change in quantity demanded resulting fro

Replacement demand, The total demand consists of: 1. New owner demand an...

The total demand consists of: 1. New owner demand and 2.A replacement demand The replacement demand tends to grow with the in the total stock with the consumers. Once a pe

Decay toothbruch, What is the arc cross elasticity of demand between Stop d...

What is the arc cross elasticity of demand between Stop decay''s toothbrush and Decay fighter''s toothbrush? What does this indicate about the relationship between the two products

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