ECON 106T Study Guide - Quiz Guide: Survival Analysis, Incentive Compatibility
Document Summary
Firm can observe customer characteristics: country (e. g. book prices, student status (e. g. airline tickets) Optimal pricing: use inverse elasticity rule for each group: lower price to most sensitive groups. Assumptions: no resale (e. g. international editions of textbooks, no cost to setting different prices, cannot change characteristics (e. g. hide student card, no ethical issues (e. g. racial discrimination in car sales, consumer demand and observable characteristics are correlated. Offer menu of products and see which consumers choose: high and low quality products (vertical differentiation), indian and american textbook (horizontal differentiation), quantity discounts. Big idea: choose options so different types of customers self-select, want to separate groups that have different wtp, need customers with different wtp to value features differently. [] what the company is trying to do is to prevent the passengers who can pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich.
