BIOC 212 Chapter Notes - Chapter 9: Economic Surplus, Reservation Price, Price Discrimination
17 Aug 2018
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Means of price discrimination effectiveness depends on the extent to which consumer"s reservation prices are negatively correlated. Negative correlation: the customer who has the higher reservation price for one product has the lower reservation price for the other product. Bundling increases profits if reservation prices are negatively correlated. R = reservation price (wtp) = demand for the product. Separate pricing seller offers good 1 and good 2 separately. Pure bundling seller offers good 1 and good 2 as a bundle at price pb. Mixed bundling firm offers separate goods and as bundle. Optimal strategy is that which maximizes profit. Depends on the comparison of their reservation prices and the prices charged for each strategy. If ripad = 1500, csipad = 100 > 0 buy it. If ripad = 1000, csipad = -400 < 0 will not buy. Csi = ri - pi where i = price of product 1, 2, and bundle.
