A
Auction
common value, 105, 112–114
Dutch, 103–104, 108–112, 114
economics behind, 105–114
English, 103–104, 106, 108–109, 111, 113–114
first-price, sealed bid, 104, 108–110, 112, 114
private value, 105–106
second-price, sealed bid, 104–108, 111, 114
B
Bundling
impact of, 69–70
market demand, 65–66, 74
pure vs. mixed, 72–75
ramifications for, 69, 72
in telecommunications industry, 64
two-part tariff, 79–83
and tying, 75–79
Business manager, 5–9
C
Change in price
complementary good, 16
substitute good, 15
Common value auction, 105, 112–114
Complementary good, 16
Consumer surplus
definition of, 17
graphical representation of, 18
individual demand, 19
market demand, 19–20
and profit-maximizing quantity, 41
and revenue
quantity discounts, 59–60
single-price strategy, 59
Cross price elasticity of demand, 33–34
Cross-elasticity coefficient, 34
D
Degree of responsiveness, 26–27
Demand curve
frozen yogurt, 23–24
gasoline, 23–24
illustration of, 13
individual demand to market demand, 18–20
and price elasticity, 31–32
price skimming, 84
price/quantity combinations, 28
profit-maximizing price and quantity, 40
two-part tariff, 80
Dutch auction, 103–104,
108–112, 114
Dynamic pricing
categories
posted prices, 100–103
price discovery, 103–114
definition of, 99
E
Economics behind auctions,
105–114
Economies of scale, 85
Elastic demand, 23, 27
Elasticity
elastic, 23, 27
incorrect inference, 28
inelastic, 23, 27
measuring, 27
unitary, 27, 30
Elasticity coefficient, 27–28
English auction, 103–104, 106, 108–109, 111, 113–114
Ethical issues, price discrimination, 120–124
F
First-degree price discrimination
airline industry, 52
definition of, 45
graphical representation of, 48
hotel industry, 53
marginal revenue, 48
practical perspectives, 50–51
and profit maximizing output, 49
strategy, 46
vs. single-price strategy, 49–50
yield management, 52–55
First-price, sealed bid auction, 104, 108–110, 112, 114
Fixed costs, 37
Fixed-price system, 99
Functional discounts, 119
G
Graphical representations
consumer surplus, 18
first-degree price discrimination, 48
market demand, 20
peak-load pricing system, 87
penetration pricing, 85
price elasticity, 23–24
price skimming, 84
profit-maximizing price, 40
profit-maximizing quantity, 40
quality choice-based price discrimination, 63
third-degree price discrimination, 91–94
total revenue and consumer surplus, 21
tying, 77
I
Illegal tying, 76
Individual demand, 19
Inelastic demand, 23, 27
Inferior good, 17
Intertemporal price discrimination
penetration strategy, 84–85
price skimming, 83–84
J
Journal of Law and Economics, 119
K
Kahneman, Daniel, 121
L
Law of demand, 11–14
causing factors
complementary good, 16
inferior good, 17
normal good, 17
substitute good, 15
and consumer surplus
definition of, 17
graphical representation of, 18
individual demand, 19
market demand, 19–20
Law of diminishing marginal
utility, 12
Legal issues, price discrimination, 117–120
Legal tying, 76
M
Managerial economics, 7–8
Managerial economics textbooks,
7–8
Marginal cost, 38
Marginal revenue, 39
Marginal utility, 12
Market demand
consumer surplus, 19–20
unbundled goods, 64–65, 67,
69, 74
Mixed bundling, 72–75
N
National Association for Convenience Stores, 25
New York Times, 52
Normal good, 17
O
Opportunity cost, 4
Output effect, 38–39, 42, 46
P
Peak-load pricing, 86–87
Penetration strategy, 84–85
Perfect competition, 99–100
Perfect price discrimination. See first-degree price discrimination
Posted prices, 100–103
Price discovery
Dutch auction, 103–104
economics behind auctions, 105–114
English auction, 103
first-price, sealed bid
auction, 104
second-price, sealed bid auction, 104–105
Price discrimination
definition of, 45
ethical issues, 120–124
first-degree (See first-degree price discrimination)
legal issues, 117–120
second-degree (See second-degree price discrimination)
third-degree (See third-degree price discrimination)
Price effect, 39, 42, 46
Price elasticity
coefficient, 27–28
definition of, 23
and demand curve, 31–32
determinants
availability of substitutes, 24
market definition, 24–25
price of the good, 25
time taken for purchase,
25–26
graphical representation of,
23–24
measuring, 26–27
and revenue, 29–30
revenue-maximizing profits, 32
Price skimming, 83–84
Primary line injury, 117–118
Private value auction, 105–106
Profit-maximizing price
graphical representation of, 40
measuring from marginal revenue and cost, 39
Profit-maximizing quantity
and consumer surplus, 41
graphical representation of, 40
measuring from marginal revenue and cost, 39
Pure bundling, 72–75
Q
Quality choice-based price discrimination
example of, 61
graphical representation of, 63
profit-maximization, 62
Quantity discounts, 57–59
R
Reference transaction, 121
Reservation price, 66, 68, 71–72
Revenue
and consumer surplus
quantity discounts, 59–60
single-price strategy, 59
and price elasticity, 29–30
Revenue equivalence theorem, 110
Revenue-maximizing profits, 32
Robinson-Patman Act, 117–120
Ross, Thomas, 119
S
Scarcity, 3
Secondary line injury, 118
Second-degree price discrimination
goal of, 57
quality choices
example of, 61
graphical representation of, 63
profit-maximization, 62
quantity discounts, 57–59
Second-price, sealed bid auction, 104–108, 111, 114
Single price strategy
profit-maximizing price, 40
profit-maximizing quantity, 40
revenue and consumer surplus, 59
vs. first-degree price discrimination, 49–50
Substitute good, 15
Sunk costs, 37
T
Third-degree price discrimination
definition of, 91
examples of, 91
graphical representation of, 91–94
Two-part tariffs, 79–83
Tying
economic advantages, 77–78
graphical representation, 77
illegal, 76
legal, 76
net benefits, 79
vs. bundling, 75
U
Unbundled goods
market demands, 64–65, 67,
69, 74
reservation price, 68
willingness to pay, 64–65, 67
Unitary elasticity, 27, 30
U.S. Food and Drug
Administration, 15
V
Variable cost, 38
Vickrey auction. See second-price, sealed bid auction
W
Winner’s curse, 112
Y
Yield management, 52–55