Pricing Strategies

1. Pricing Strategies • Uniform Pricing • Non-Uniform Pricing • Two-part tariff • Quantity discounts • Tie-in sales • Menu Pricing • Quality Discrimination • Coupons • Southwest Airlines This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

2. Conditions for Price Discrimination • Market Power • Identify Consumers • Prevent or limit resale • Services • Warranties • Adulteration • Transaction Cost • Contractual Remedies • Vertical Integration • Government Intervention This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

3. Canadian Web Pharmacy Sales • Lipitor is cheaper in the Mexico and Canada than in US. • Does this create problems for Pfizer’s pricing strategy? • http://www.canadamedicineshop.com • Does the US have any interest in protecting Pfizer’s ability to do this? • Zocor patent expired in June 2006 • What happened to Merck’s stock price? • What happened to Pfizer’s stock price? • What happens to Pfizer’s ability to use price discrimination? This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

4. Major industries using Aluminum This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

5. Perfect Price Discrimination Inverse Demand: P=1 - .001Q .64 MC = .28 Q 360 720 1000 MR=1-.002Q This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

6. Two Part Tariff Inverse Demand: P=1 - .001Q .64 MC = .28 360 720 1000 MR=1-.002Q This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

7. Tie-in Sales and Bundling Table entries are reservation prices • Strategy 1: Charge $20 for Streets and $10 for Planner • Revenue = $60 • Strategy 2: Charge $35 for the bundle. • Revenue = $70 This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

8. Different Prices to Different Customers This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

9. Figure 9.2: 3rd Degree Price Discrimination $ MC = m Demand Group 1 Demand Group 2 Q1 MR for Group 2 Q2 MR for Group 1 This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

10. Other Methods of Third Degree Price Discrimination • Cut price on complaints • L.A. Times • Value of Time • Rebates • Willingness to wait • Hard cover books This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.

11. Welfare Effects • Perfect price discrimination • Efficient • Shifts surplus toward sellers • Third Degree Price Discrimination • Price > MC • Inefficient allocation of goods between customers • May make customers do inefficient things to earn the lower price. This slideshow was written by Ken Chapman, but is substantially based on concepts from Modern Industrial Organization by Carlton and Perloff, 4th edition, McGraw-Hill.