Perfect Competition has the following distinguishing characteristics: • • • • Many Buyers & Many Sellers Products are Homogeneous Perfect knowledge of competitors activities ‐ i.e. symmetrical knowledge Firms are Price Takers not Price Maker • • • • Freedom of Entry and Freedom to Exit All PC firms face the same costs Price = Demand = AR= MR. Firms make an economic profit Or an economic loss • No barriers to entry Examples: The spot market for crude oil & spot market for Henry Hub natural gas. Both mark
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position, which is not possible in perfectly competitive markets, where it can charge different price to different group of consumers for an identical product, even though the cost of each such saleable unit remains same. The report will discuss how Indian Railways uses its monopolistic position in Indian Rail transport industry to engage in policy of price discrimination. Price discrimination Price discrimination
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Second Degree Price Discrimination Suppose you know the following about an industry that is a monopoly. Market Demand: P = 200 - .5Q Marginal Cost = 40 There are no fixed costs a) What is the marginal revenue curve for this monopoly? b) Find the profit maximizing quantity for this monopolist if it charges a single price for the good. c) Find the profit maximizing price for this monopolist if it charges a single price for the good. d) What do profits equal for this single price monopolist
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Topic 1 Consider a market which a monopolist and a firm that is considering entry. The new firm knows that if the monopolist "fights" (that is, sets a low price after the entrant comes in), the new firm will lose money. If the monopolist accommodates (continues to charge a high price), the new firm will make a profit. | | |
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on the effectiveness of existing price strategies such as perception based pricing, price discrimination, bundling and discount management. Our analysis suggests that the F1 tickets in Singapore are wrongly priced as it fails to capture perceived benefits such as having a city track and being the first ever night race. It is, however, too late to reset the price as the reference point has been established. Next, we argue that while the use of price discrimination has increased the total revenue from
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factors. Market structures such as monopoly and oligopoly play a major part in setting price. Market structures can then influence the objectives and behavior within a firm (Sloman & Wride, 2009). This can lead to the use of different pricing strategies, thus having varied effects on the level of price set. Traditional theory suggests that a firms’ main objective is profit maximization. Therefore, prices will be set in line to meet this objective. A monopoly is defined as one dominant firm
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It is commonly known that the airline industry uses a different mechanisms to price discriminate (PD) consumers with varying elasticities of demand in terms of travel.[1] In this case study, I will investigate PD based on the day of the week a ticket is purchased. In theory, this method of price discrimination is very feasible as airfares can be easily changed on a day to day basis. For example, consumers who travel on any given day of the week but purchase on the weekend may have different PED than
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NONLINEAR PRICING STRATEGIES AND MARKET CONCENTRATION IN THE AIRLINE INDUSTRY A Dissertation by MANUEL A. HERNANDEZ GARCIA Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY August 2009 Major Subject: Economics UMI Number: 3384249 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that
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produces a substitute for a firm’s product. - Cross price elasticity: Measures the substitution degree of a product for another. P.E.>1 – The demand is elastic, a change in price is reflected as an even major change in demand. The extent of the variation is higher as higher is the substitution degree of a product for another. We can say two firms are competing when a price increase by one firm, drives its customers to the other firm. P.E. P (find higher prices). Relevant Geographic Market Imports and Transportation
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7, 11, and 13. 7. Quantity discounts are not a form of price discrimination because the firm saves on handling large orders. True or False? Explain True, quantity discounts are not a form of price discrimination because the firm saves on handling large orders (Salvatore, 2012, p. 492). Large orders can be shipped at a lesser price compared to smaller orders, saving on shipping cost. There are many companies that reduce the price of the product if the company buys in bulk. In addition
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