Transcript price discrimination

Matakuliah
Tahun
Versi
: J0434 / Ekonomi Managerial
: 01 September 2005
: revisi
Pertemuan < 21 >
Pricing Techniques and Analysis
Chapter 16
Learning Outcomes
Pada akhir pertemuan ini, diharapkan mahasiswa
akan mampu :
membuat analisis teknik penetapan harga (C4)
Outline Materi
• Pricing Techniques and Analysis
• Differential Pricing
• Price Discrimination
Pricing Techniques and Analysis
• Value-based more than cost-based pricing often
helps build profits.
• Firms charge different customers different
prices, which is known as price discrimination.
• This chapter also looks at pricing within a firm
called transfer pricing.
• Pricing techniques that are used by many multiproduct firms, such as full-cost pricing and
target return pricing.
2002 South-Western Publishing
Proactive Value-based Pricing
• If the price doesn’t fit what customers are willing to pay,
then the product may not be profitable.
– Customer value is the focus for pricing, not just the costs
associated with the product.
– Apple Computer lost market share by ignoring this.
– The Ford Mustang was a success, as Ford found that people
wanted a sports car, but didn’t want it to be too expensive.
The started with a price and designed the product.
• The Mustang used value-based, not cost-plus pricing
Differential Pricing
• If at peak rush hour, the toll is higher than
at the off-peak, we are using different
prices at different time periods.
• The peak toll can encourage shifting travel
patterns to off-peak times or discourage
some commuting altogether.
• Differential pricing appears more
frequently than one thinks. This we call
price discrimination.
Price Discrimination
 Price Discrimination -- Goods which are
NOT priced in proportion to their marginal cost,
even though technically similar
 Some
Necessary Conditions:
1. Some Monopoly Power
• In Perfect Competition, P = MC
2. Ability to Arbitrage
• Separate Customers and Prevent Reselling
Arbitrage -
Buy Low to Sell Higher
• Arbitrage of Goods is Easy
– Price discrimination of goods is ineffective
– Little price discrimination of grocery items
• Arbitrage of Services is Difficult
– Price discrimination of services is effective
– Price discrimination at restaurants by age, a
service
– Lawyers charge different prices for wills,
based on ability to pay
Many Ways to Separate Customers for
Price Discrimination
1.
2.
3.
4.
5.
Geography
Income
Gender
Age
Time
6. Race
7. Language
8. Transient /
Resident
9. Ability to
Haggle
Why Practice Price Discrimination?
• In Simple Monopoly,
there is only one
price
• Consumers receive
CS
P
SM
a consumer surplus
• In Price
Discrimination,
monopolists can
SCOOP OUT all
consumer surplus
MC
Simple
Monopoly
QSM
D
Q
First Degree Price Discrimination
• Charge the MOST
that a person is
willing to pay for
each good
• Zero consumer
surplus
• Produce MORE
than in Simple
Monopoly
• Output the same as
in Competition
Price Discriminating MC
Monopoly
D
Q
Q1st
Car Sales as First Degree Price
Discrimination
“How much do you
plan to pay a
month?”
you inadvertently reply:
“Only $200 per
month, but I
have $3,000
down payment!”
Ahh, that is
$9,887 for 60
months at our
7.9% financing,
plus $3,000
Here’s one for only
$12,887. It’s swell.
Notice: Incentives to Understate
One’s True Willingness to Pay
• The conditions
for First Degree
price
discrimination are
seldom met
• Hence, some
close
approximations
exist
Second Degree Price
Discrimination:
Units are Grouped
• There are are a
variety of ways to
group units to attempt
to scoop out
consumer surplus
Second Degree Price
Discrimination Methods
We look at four examples:
• Block rate setting
• Two part pricing
• Unlimited access
• Bundling methods
Second Degree Price Discrimination:
Block Rate Pricing
• Price declines as the quantity
purchased increased
• Examples:
–
–
–
–
P
D
Tri-State Gas Company example (page
632)
TJ Maxx, second pair half price
telephone charges
foreign film festivals
• Price declines similar to the demand
curve
Q
Another Second Degree Price Discrimination:
Two-Part Pricing:
• A price for the
privilege of buying
items
• And a price per
item
• Examples:
– Country Club Dues MC
and Greens Fees
– Cover Charge to
Enter and a Price
Per Drink
Cover
Charge
Q
If P = 4.50 - Q and MC = .50
Find Optimal Cover Charge
• At P = $.50,
he/she buys 4
Cover
Charge
mugs of root beer
$4.50 $8.00
• Biggest cover
charge is the
area of a triangle PM=$2.50
Cover
– Height is 4
Charge $8
$.50
– Base is 4
– (1/2)Height•Base
• Max cover
charge is $8.00
QM
Monopoly: QM = 2 & PM = $2.50
4
Q
Second Degree Price Discrimination:
Unlimited Access
or All-You-Can-Eat Pricing
A specified price for an unspecified quantity:
Example: AOL unlimited access for $19.95/month
Examples: Salad Bars, Legal Retainers, HMO’s
P
Area under demand
curves represent most
willing to pay for an
AYCE offer
ounces
Second Degree Price Discrimination:
Bundling (or Block Booking)
Often the pricing arrangement includes purchasing
groups of dissimilar products. The products are
bundled or sold as a block, as in theatrical or
sporting tickets.
Preferences are uncorrelated
A
1
2
Preferences are correlated
B
150
80
100
190
A
250
270
160
200 = 360
simple monopoly
500
80
B
100 180
360
165
175 340
165
200 = 365
simple monopoly
Third Degree Price Discrimination
East
West
Market
PM
MC
MR
Example with a Simple Monopoly
Price in both markets
Third Degree Price Discrimination
East
West
Market
PE
PM
PW
MC
MR
MR
MR
Example with Different Prices in Each Market
Summary
• Value-based more than cost-based pricing
often helps build profits.
• Firms charge different customers different
prices, which is known as price
discrimination.
• This chapter also looks at pricing within a firm
called transfer pricing.
• Pricing techniques that are used by many
multi-product firms, such as full-cost pricing
and target return pricing.