Price Discrimination: A Study of Pricing Strategies and Analysis

This assignment analyzes price discrimination strategies, focusing on how sellers can maximize profits by understanding consumer valuations. It explores the differences between perfect information scenarios, where sellers can capture all consumer surplus, and situations with limited information, where two-part tariffs are employed. The assignment examines how marginal costs and the ability to identify different consumer types influence pricing decisions. It also highlights how the seller sets the price to maximize profit and consumer surplus, including examples of setting a fixed fee and per-unit price. This assignment is designed to help students understand the dynamics of pricing and its relation to market conditions.

price discrimination

Price Discrimination 1
Solution1)
In the given model different consumer have different valuation of seller’s good. There are two
type of buyers:
High valuation buyers with type and Low valuation buyers with type , so that .
Consider the first case in which seller have the perfect information about buyer’s valuation, in
this case seller can grab all the consumer surplus from the market by setting the fixed fee equal
to the surplus of low yield that is and then choose price P to maximize the total profit. Thus, if
on the other hand if seller have to set single two part tariff, seller consider all the consumer
valuation same so thus their demand curve are also assume to be same, in this case monopolist
can capture all the consumer surplus by setting price equal to marginal cost and setting the fixed
fee equal to the consumer surplus for an individual consumer.
Suppose the A “two-part” tariff:
Thus, in the second case low valuation buyer will move out if the fixed fee is greater than ,
while in perfect information seller can set fixed fee and set the price as to maximize the
total profit.
Since perfect information helps monopolist to capture all the consumer surplus from the market.
Therefore,

Price Discrimination 2
As per the given information seller set where c is the marginal cost in case of perfect
information. Whereas seller set per unit price as he is using single two-part tariff and able
to identify only one-type of consumer, thus, he set price above the marginal cost to capture more
consumer surplus.
Thus,