Consider a monopolist who produces perishable (non durable good) in two periods. The cost of production of one unit is c = 1/4. In both periods the monopolist faces a unit mass of costumers of two types θH = 1 and θL = 1/2. Each consumer needs only one unit of the good and gets a utility θ from buying it. Fraction of each type in the population is µ = 1/2. The discount factor is δ > 1/2. Suppose the monopolist cannot price discriminate between new and returning customers, what would be his prices and profits in the two periods?Suppose now the monopolist got a technology that allows him to track costumers, so that at period 2 he can distinguish new and returning customers, i.e. in period 2 he can charge price pN to a new customer and price pR to a returning customer. As in the class, assume there is not commitment to What would be the monopolists prices and profits in this case?What is the monopolist’s gain from the ability to price discriminate, explain the intuition behind this result?

Price discrimination is a concept in economics under which a monopoly can charge e differentiated…

Answered: Suppose the monopolist cannot price…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a monopolist who produces perishable (non durable good) in two periods. The cost of production of one unit is c = 1/4. In both periods the monopolist faces a unit mass of costumers of two types θ_H = 1 and θ_L = 1/2. Each consumer needs only one unit of the good and gets a utility θ from buying it. Fraction of each type in the population is µ = 1/2. The discount factor is δ > 1/2.

Suppose the monopolist cannot price discriminate between new and returning customers, what would be his prices and profits in the two periods?
Suppose now the monopolist got a technology that allows him to track costumers, so that at period 2 he can distinguish new and returning customers, i.e. in period 2 he can charge price p_N to a new customer and price p_R to a returning customer. As in the class, assume there is not commitment to What would be the monopolists prices and profits in this case?
What is the monopolist’s gain from the ability to price discriminate, explain the intuition behind this result?

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