- Describe price discrimination as the practice of charging different prices to different consumer groups for the same product, where the price difference is not justified by differences in cost.
- Explain that price discrimination may only take place if all of the following conditions exist: the firm must possess some degree of market power; there must be groups of consumers with differing price elasticities of demand for the product; the firm must be able to separate groups to ensure that no resale of the product occurs.
- Draw a diagram to illustrate how a firm maximizes profit in third degree price discrimination, explaining why the higher price is set in the market with the relatively more inelastic demand.
Assumptions of the model
First up... the characteristics of oligopoly... you'll receive a handout on this.
Next... games.... or, at least, "game theory"... some videos and a simulation to help explain this... and a task.
Then you will make some notes, with diagrams, on the difference between collusive and non-collusive oligopoly.
We will finish up with some case studies.
A bit of perfect competition with a dash of monopoly power (price setting ability) = monopolistic competition. You'll get a packet to meet the objectives above. The graphs are the same as for monopoly but with a flatter (more elastic) demand curve.
Barriers to entry
We will go further into the packet in the next two days to address these other objectives for monopoly. It is particularly important to be able to compare perfect competition to monopoly - this could be the second part of a long essay, i.e. the evaluation section.