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Topic 6: Mass Market Pricing

2. Posted versus negotiated prices. In mass markets, it is more convenient to simply post a priceConsumers whose willingness-to-pay is above that price will purchase from youConsumers will lower their own demand and just purchase units for which their WTP for that unit exceeds price. 3. Looking fo

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Topic 6: Mass Market Pricing

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    1. Topic 6: Mass Market Pricing How to set prices in mass markets Paul Kerin & Sam Wylie MBS: Term 3, 2004

    2. 2 Posted versus negotiated prices In mass markets, it is more convenient to simply post a price Consumers whose willingness-to-pay is above that price will purchase from you Consumers will lower their own demand and just purchase units for which their WTP for that unit exceeds price

    3. 3 Looking forward ... Mass market demand Relationship between revenue and demand Elasticity of demand Profit-maximising price levels Price discrimination

    4. 4 Mass Market Demand The monopolist faces a demand schedule or curve This describes the number of units the monopolist will sell for any given price The market demand curve is found by summing up the willingness-to-pay curves of all potential consumers

    5. 5 Puzzle: Luxury Boxes Among the many decisions made by sports stadium designers is the number of luxury boxes to build Suppose that, for a particular stadium under construction, luxury boxes will be sold outright to local businesses and can be constructed at a cost of $300,000 apiece. The stadium designer plans to build 25 boxes and expects, at this number, to sell each for $1 million, for a net profit of $700,000 x 25 = $17.5m An associate asserts that this is crazy. Since the boxed can be build for $300,000 and sold for around $1m apiece, building only 25 leaves money on the table, even if a small price reduction is needed if more are built Is the associate correct? What if the price to sell 26 is $950,000?

    6. 6 Demand curves When a seller faces a mass market then we can summarise their information about the market by a ‘demand curve’ A demand curve is the seller’s best prediction as to how many units of the product he can sell for any specific posted price

    7. 7 Example

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