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Topic 13: Predatory and other pricing strategies

A ntitrust Economics 2013. David S. Evans University of Chicago, Global Economics Group. Elisa Mariscal CIDE, Global Economics Group. Topic 13: Predatory and other pricing strategies. Topic 13| Part 1 29 October 2013. Date. Overview. Key Takeaways.

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Topic 13: Predatory and other pricing strategies

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  1. Antitrust Economics 2013 David S. Evans University of Chicago, Global Economics Group Elisa Mariscal CIDE, Global Economics Group Topic 13: Predatory and other pricing strategies Topic 13| Part 1 29 October 2013 Date

  2. Overview

  3. Key Takeaways

  4. Price Discrimination and Other Complex Pricing

  5. Price Discrimination and Other Complex Pricing

  6. What is Price Discrimination?

  7. Price Discrimination is Common in Competitive Markets

  8. Harvard does it …

  9. … and so does eBay

  10. Several Conditions Must Hold for Price Discrimination

  11. “Third-Degree Price Discrimination” Price Group 2 pays lower price P1 > P2 P1 P2 MC D2(P2) D1(P1) q2 q1 Output MR1 MR2

  12. “Third-Degree Price Discrimination”

  13. Welfare Consequences of 3rd Degree Price Discrimination

  14. “First Degree Price Discrimination”

  15. Price P1 P2 P3 D(P) MC q1 q2 q3 Output “First Degree Price Discrimination” Maximum profit for the firm; maximum total surplus; minimum consumer surplus.

  16. “Second Degree” Price Discrimination

  17. “Second Degree” Price Discrimination—Two-Part Tariffs

  18. Fee Members of Group 1 = Fee Members of Group 2 = Economics of Two-Part Tariffs Demand schedule is for member of group Price P1 P2 MC D2 D1 Q2 Q1 Output MR2 MR1

  19. Tie-Ins and Metering for 2nd Degree Price Discrimination

  20. Bundled Products and Price Discrimination: The Case of Block Booking Suppose two products and two customers and each product costs $0. Source: George J. Stigler, “United States v. Loew’s Inc.: A Note on Block Booking,” Supreme Court Review 152 (1963), pp. 152-157

  21. Demand Aggregation and Package Sales Suppose two products and two customers and each product costs $0.

  22. Demand Aggregation

  23. Price Discrimination and Static Social Welfare

  24. Price Discrimination and Dynamic Social Welfare

  25. Limit Pricing

  26. Basic Story of Limit Pricing

  27. Price PI MCE PI ‘ MCI MR Output Monopoly Facing Actual or Potential Entry

  28. Entrant Stay out Enter Incumbent 0 10 Fight Accommodate -1 0 4 5 Monopoly Facing Actual or Potential Entry

  29. Reasons Not to Wait…

  30. Limit Pricing and Competition Policy

  31. End of Part 1, Next week Part 2

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