Chapter 11: ,pricing With Market Power, Microeconomics, Sixth Edition, Robert S. Pindyck, Daniel L. Rubinfield

Front 1

price discrimination

Back 1

Practice of charging different prices to different consumers for similar goods

Front 2

reservation price

Back 2

maximum price that a customer is willing to pay for a good

Front 3

first-degree price discrimination

Back 3

Practice of charging each customer her reservation price

Front 4

Profit maximizing output

Back 4

Output at which marginal revenue is equal to marginal cost

MR = MC

Front 5

variable profit

Back 5

sum of profits on each incremental unit produced by a firm; i.e., profit ignoring fixed costs

Front 6

perfect price discrimination

Back 6

charging each consumer exactl waht her or she is willing to pay.

The additional profit from producing and seeling an incremental unit is now the difference between demand and marginal cost.

Front 7

imperfect price discrimination

Back 7

charging a few different prices based on estimates of customers' reservation prices

Front 8

second-degree price discrimination

Back 8

practice of charging different prices per unit for different quantities of the same good or service

(e.g., a single roll of Kodak film might be rpiced at $5, while a box containing four rolls of the same film might be priced at $14)

Front 9

block pricing

Back 9

practice of charging different prices for different quantities of "blocks" of a good (by electric power comapnies, natural gas utilities, etc)

Front 10

third-degree price discrimination

Back 10

Practice of dividing consumers into two or more groups with sperate demand curves and charging different prices to each group (discounts to students and senior citizens)

Front 11

intertemporal price discrimination

Back 11

practice of separating consumers with different demand functions into different groups by charging different prices at different points of time.

Front 12

peak-load pricing

Back 12

practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.

Front 13

two-part tariff

Back 13

form of pricing in which consumers are charged both an entry and usage fee

(e.g. theme park, golf club)

Front 14

bundling

Back 14

practice of selling two or more products as a package

In general, the effectiveness of bundling depends on the extent to which demands are negatively correlated. It works best when consumers who have a high reservation price for good 1 have a low reservation price for good 2, and vice versa

Front 15

mixed bundling

Back 15

practice of selling two or more goods both as a packange and individually

Front 16

pure bundling

Back 16

practice of selling products only as a package

Front 17

tying

Back 17

practice of requiring a customer to purchase one good in order to purchase another