Quản trị kinh doanh - Chapter 12: Capturing surplus

1Capturing SurplusChapter 12Copyright (c)2014 John Wiley & Sons, Inc.2Chapter Twelve OverviewIntroduction: Airline TicketsPrice DiscriminationFirst DegreeSecond DegreeThird DegreeTie-in SalesRequirements Tie-insPackage Tie-ins (Bundling)Chapter TwelveCopyright (c)2014 John Wiley & Sons, Inc.3Chapter TwelveUniform Price Vs. Price DiscriminationDefinition: A monopolist charges a uniform price if it sets the same price for every unit of output sold.While the monopolist captures profits due to an optimal uniform pricing policy, it does not receive the consumer surplus or dead-weight loss associated with this policy.The monopolist can overcome this by charging more than one price for its product. Definition: A monopolist price discriminates if it charges more than one price for the same good or service.Copyright (c)2014 John Wiley & Sons, Inc.4Chapter TwelveForms of Price DiscriminationDefinition: A policy of first degree (or perfect) price discrimination prices each unit sold at the consumer's maximum willingness to pay. This willingness to pay is directly observable by the monopolist.Definition: A policy of second degree price discrimination allows the monopolist to offer consumers a quantity discount.Definition: A policy of third degree price discrimination offers a different price for each segment of the market (or each consumer group) when membership in a segment can be observed. Copyright (c)2014 John Wiley & Sons, Inc.5Chapter Twelve“Willingness to Pay” CurveDefinition: The consumer's maximum willingness to pay is called the consumer's reservation price.Think of the demand curve as a "willingness to pay" curve. If the monopolist can observe the willingness to pay of each customer (based on, for example, residence, education, "look", etc), then the monopolist can observe demand perfectly and can "perfectly" price discriminate.Copyright (c)2014 John Wiley & Sons, Inc.6Chapter TwelveForms of Price DiscriminationDefinition: A policy of first degree (or perfect) price discrimination prices each unit sold at the consumer's maximum willingness to pay. This willingness to pay is directly observable by the monopolist.Copyright (c)2014 John Wiley & Sons, Inc.7DMCP1PUEFGHJKNLCS: E+F 0PS: G+H+K+L E+F+G+H+J+K+L+NTS: E+F+G+H+K+L E+F+G+H+J+K+L+NDWL: J+N 0Chapter TwelveMRQuantityUniform Price Monopoly 1st Degree P.D. MonopolyUniform Price Vs. Price DiscriminationPriceCopyright (c)2014 John Wiley & Sons, Inc.8Chapter TwelveIs it Reasonable?Buying a CarThe monopolist will continue selling units until the reservation price exactly equals marginal cost.Therefore, a perfectly price discriminating monopolist will produce and sell the efficient quantity of output.Note: Only if the monopolist can prevent resale can the monopolist capture the entire surplus.Copyright (c)2014 John Wiley & Sons, Inc.9Chapter TwelvePricing Surplus – MonopolyMC = 2P = 20 - QWhat is producer surplus if uniform pricing is followed?MR = P + (P/Q)Q = 20 - Q - Q = 20 - 2QMR = MC => 20 - 2Q = 2 =>Q* = 9P* = 11PS= Revenue-TVC = PQ-2Q = 11(9)-2(9) = 81Copyright (c)2014 John Wiley & Sons, Inc.10Chapter TwelvePricing Surplus – MonopolyWhat will producer surplus be if the monopolist perfectly price discriminates?P = MC => 20 - Q = 2 =>Q* = 18Revenue - TVC = [18(20-2)(1/2) + 18(2)]-18(2) = 162This is a gain in captured surplus of 81!Copyright (c)2014 John Wiley & Sons, Inc.11MR (uniform pricing)DMCQuantityPrice1122091820Chapter TwelveFirst Degree Price DiscriminationWhat is the marginal revenue curve for a perfectly price discriminating monopolist?When the monopolist sells an additional unit, it does not have to reduce the price on the other units it is selling. Therefore, MR = P. (i.e., the marginal revenue curve equals the demand curve.)Copyright (c)2014 John Wiley & Sons, Inc.12Chapter TwelveDefinition: A policy of second degree price discrimination allows the monopolist to charge a different price to different consumers. While different consumers pay different prices, the reservation price of any one consumer cannot be directly observed.Second Degree Price DiscriminationCopyright (c)2014 John Wiley & Sons, Inc.13Chapter TwelveTwo Part TariffDefinition: A monopolist charges a two part tariff if it charges a per unit fee, r, plus a lump sum fee (paid whether or not a positive number of units is consumed), F.This, effectively, charges demanders of a low quantity a different average price than demanders of a high quantity.Example: hook-up charge plus usage fee for a telephone, club membership, or the like.Copyright (c)2014 John Wiley & Sons, Inc.14100100QP10904050Chapter TwelveExample: All customers are identical and have demand P = 100 - Q MC = AC = 10Two Part TariffCopyright (c)2014 John Wiley & Sons, Inc.15Chapter TwelveTwo Part TariffWhat is the optimal two-part tariff?Two steps:(1) maximize the benefits to the consumers by charging r = MC = 10. (2) capture this benefit by setting F = consumer benefits = 4050.Copyright (c)2014 John Wiley & Sons, Inc.16Chapter TwelveTwo Part TariffAny higher usage charge would result in a dead-weight loss that could not be captured by the monopolist. Any lower usage charge would result in selling at less than marginal cost. In essence, the monopolist maximizes the size of the "pie", then sets the lump sum fee so as to capture the entire "pie" for itself.The total surplus captured is the same as in the case of perfect price discrimination.Copyright (c)2014 John Wiley & Sons, Inc.17Chapter TwelveBlock TariffDefinition: If a consumer pays one price for one block of output and another price for another block of output, the consumer faces a block tariffCopyright (c)2014 John Wiley & Sons, Inc.18Chapter TwelveBlock TariffExample P = 100 - Q MC = AC = 10Let Q1 be the largest quantity for which the first block rate applies so that p1(Q1) = 100 - Q1.Let Q2 be the largest quantity purchased (so that the second block rate will apply between Q1 and Q2) so that p2(Q2) = 100 - Q2Copyright (c)2014 John Wiley & Sons, Inc.19Chapter TwelveBlock TariffExampleThen: = p1(Q1)Q1 + p2(Q2)(Q2-Q1) - TC(Q2) = (100 - Q1)Q1 + (100 - Q2)(Q2-Q1) - 10Q2and we must choose Q1 and Q2 to maximize this profitMR1 = (100 - Q1) - Q1 - (100 - Q2) = 0MR2 = (100 - Q2) - Q2 + Q1 = MC = 10Copyright (c)2014 John Wiley & Sons, Inc.20Chapter TwelveKey EquationsThese are two equations in two unknowns that can be solved to obtain: Q1* = 30 Q2* = 60 P1* = 70 P2* = 40 (a quantity discount)Copyright (c)2014 John Wiley & Sons, Inc.2100PPQQMCDemandDemandMR1055451001004070100 30 60 100450450 450270020251012.51012.5Chapter TwelveSingle PriceMonopolyBlock PricingQuantityDiscriminationCopyright (c)2014 John Wiley & Sons, Inc.22Chapter TwelveBlock PricingIf the monopolist could set a different block price for each customer, it would capture the same amount of surplus as a perfectly price discriminating monopolist.Copyright (c)2014 John Wiley & Sons, Inc.23 QD - small D - largeMCChapter TwelveUtility PricingCopyright (c)2014 John Wiley & Sons, Inc.24P1P2Q1sQ1L Q2L QAdditional CSMCAdditional PSChapter TwelveD - small D - largeUtility PricingCopyright (c)2014 John Wiley & Sons, Inc.25Chapter TwelveThird Degree Price DiscriminationDefinition: A policy of third degree price discrimination offers a different price for each segment of the market (or each consumer group) when membership in a segment can be observed. Example: Movie ticket sales to older people or students at discount Suppose that marginal costs for the two markets are the same. How does a monopolist maximize profit with this type of price discrimination? Copyright (c)2014 John Wiley & Sons, Inc.26Chapter TwelveSet the marginal revenue in each market equal to marginal cost. (i.e., the monopolist maximizes total profits by maximizing profits from each group individually.)This implies that MR1 = MC = MR2 at the optimum. Otherwise, the monopolist could raise revenues by switching sales from the low MR group to the high MR group.MC = AC = 20P1 = 100 - Q1P2 = 80 - 2Q2Optimal PricingExampleCopyright (c)2014 John Wiley & Sons, Inc.27Chapter TwelveMR1 = 100 - 2Q1 = MC = 20MR2 = 80 - 4Q2 = MC = 20Q1* = 40Q2* = 15P1* = 60P2* = 50Optimal PricingExampleCopyright (c)2014 John Wiley & Sons, Inc.28080502040QPDemand 2MR2Chapter Twelve01001002060PDemand 1MR1Third Degree Price DiscriminationQMarket 1Market 2Copyright (c)2014 John Wiley & Sons, Inc.29Chapter TwelveTie-in Sales – RequirementsDefinition: A tie-in sale occurs if customer can buy one product only if they agree to purchase another product as well. Requirements tie-in sales occur when a firm requires customers who buy one product from the firm to buy another product from the firm.A requirements tie-in sale may be used in place of price discrimination when the firm cannot observe the relative willingness to pay of different customers.Copyright (c)2014 John Wiley & Sons, Inc.30Chapter TwelveTie-in Sales – Bundling Package tie-in sales (or bundling) occur when goods are combined so that customers cannot buy either good separately.Bundling may be used in place of price discrimination to increase producer surplus when consumers have different willingness to pay for the goods sold in the bundle.But bundling does not always payCopyright (c)2014 John Wiley & Sons, Inc.31Chapter TwelveTie-in Sales – BundlingNegatively Correlated PreferencesCopyright (c)2014 John Wiley & Sons, Inc.32Chapter TwelveTie-in Sales – Bundling Optimal Pricing PolicyWithout bundling: pc = $1500 pm = $600 Profit cm = $800With bundling: pb = $1800 Profit b = $1000Copyright (c)2014 John Wiley & Sons, Inc.33Chapter TwelveTie-in Sales – BundlingPositively Correlated PreferencesCopyright (c)2014 John Wiley & Sons, Inc.34Chapter TwelveTie-in Sales – BundlingOptimal Pricing PolicyWithout bundling: pc = $1500 pm = $600 Profit cm = $800With bundling: pb = $2100 Profit b = $800In general, bundling a pair of goods only pays if their demands are negatively correlated (customers who are willing to pay relatively more for good A are not willing to pay as much for good B).Copyright (c)2014 John Wiley & Sons, Inc.35Chapter TwelveReservation PriceThe reason is that the price is determined by the purchaser with the lowest reservation price.If reservation prices for the two goods are negatively correlated, bundling reduces the dispersion of reservation prices and so raises the price at which additional units can be sold.Copyright (c)2014 John Wiley & Sons, Inc.36Chapter TwelveAdvertisingThe firm can capture surplus using nonprice strategies such as advertising.Copyright (c)2014 John Wiley & Sons, Inc.