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

Economics, what is micro economics

what is micro economics

Non-accelerating-inflation rate of unemployment, Non-Accelerating-Inflation...

Non-Accelerating-Inflation Rate of Unemployment (NAIRU): This theory is a variant of neoclassical natural rate of unemployment. As in original natural rate theory, NAIRU advocates

Production possibilities curve, What is the marginal opportunity producing ...

What is the marginal opportunity producing the first unit of paper? The marginal opportunity cost of producing the forth unit of paper?

Theory of demand and utility, prove that the utility approach and the indif...

prove that the utility approach and the indifference curve yield the same consumer equilibrium.

What are the determinants of income elasticity of demand, What are the dete...

What are the determinants of income elasticity of demand?  There are three determinants of income elasticity of demand. These are: Degree of necessity of a good: In a developed

Market supply of labour, Use a graphical illustration to describe briefly w...

Use a graphical illustration to describe briefly what the influence of each of the following would be on the market supply of labor:(a) an increase in immigration (b) more women en

Explain why subsidies to domestic firms s a trade barrier, Explain why subs...

Explain why subsidies to domestic firms act as a trade barrier. A trade barrier is broadly explained as any market intervention whereby the ratio of price of exports to price o

Externality, When somebody wearing muddy shoes rides a public bus, he impos...

When somebody wearing muddy shoes rides a public bus, he imposes a negative externality on other riders (passengers get some mud rubbed off on them, and the shoes look ugly). If a

Microenconomics 3, Output 0 Fixed cost $100 Varaible Cost 40 what is the T...

Output 0 Fixed cost $100 Varaible Cost 40 what is the Total cost and Total revenue also the Profit/Loss

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