9. Price Discrimination
Quiz 2 is today.
Assigned Reading
- Deneckere, Raymond and R. Preston McAfee, ``Damaged Goods,''
Journal of Economics and Management Science, Summer
1996, 5: 149-174.
This is a real journal article. Don't freak out. Read as much of it
as is useful. One purpose of this assignment is for you to figure out
what ``useful'' means, without me telling you in advance. Also, ask
yourself: Why do they have both parts to this article-- the stories
at the start and the math at the end?
Ideas
Central Idea:
Price discrimination via quality reduction can increase both profits
and consumer welfare.
Antithesis:
Price discrimination and low quality always hurt consumers.
Topics That Might be Discussed in Class
- Reservation prices and perfect price
discrimination
- The advantage of lowering your product quality
- The 486-DX computer
- The Sony Mini-Disc
- Educational Software
- Denture Plastic
- Numerical Example of a Pareto Improvement
Important Terms
Reservation Price,
Perfect Price Discrimination,
Crimping the Product,
Pareto Improvement,
For Next Time
- Thinking Strategically (Avinash Dixit and Barry
Nalebuff), Chapter 7, Unpredictability
Additional Material
Return to the Thinking Strategically Home
Page at http://pacioli.bus.indiana.edu/erasmuse/g570/g570.htm.
Send comments to Prof.
Rasmusen. Last updated: February 3, 2002.