MGEC41H3 Lecture Notes - Lecture 9: Reservation Price, Arbitrage, Price Discrimination
24 Sep 2020
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Same three requirements as price discrimination: heterogeneous demands of consumers, firms needs ability to set prices, firms must prevent arbitrage. Very profitable for firms: more profitable to bundle than just set mr = mc. Selling groups of related goods together at a single price. Mixed bundling: if the individuals can also be bought separately. Pure bundling: if the individuals cannot be bought separately: example: cable tv, cable tv and internet in one bundle, example: fast food is mixed bundling, combo vs individual. Profitable when consumers are very heterogeneous and firms are unable to tell apart: similar to second degree. Firms can estimate their reservation price (maximum willingness to pay for a good) Effective when total reservation prices are similar even if individual reservation prices are different. Choose a price for each good (p1 and p2) to max profits: profit for each product will be the price chosen * number of consumers who would buy it.
