Differing objectives and policies of firms

• • First Degree: The firm sells at different prices for different consumers based on their ability /willingness to pay. The main focus is on maximising willingness to pay
  • Demand curve = MC
  • Price = MR
• • Second Degree: Consumers will only buy more of a product when the additional units are lower in price, which causes firms to charge a higher price for the first unit and lower for the successive.
  • Total revenue and profit rise.
• • Third Degree: Discriminate between consumers based on the presumption that groups of consumers have a different price elasticity demand for the product.
• • Conditions for Price Discrimination:
  • The degree of monopoly power needs to be a price maker.
  • Be able to identify the different market segments.
  • The elasticity of demand for different consumers is known.
  • Firms need to prevent re-sale of products by consumers. This could result in the exploitation of consumers.
• • Limit Pricing: seeks to keep firms out of the market. Short-term method used by oligopolists and monopolists.
• • Predatory Pricing: Prices are set very low, sometimes below average total cost, to drive out competition and create a monopoly.
• • Price Leadership: Commonly used by oligopolies, the highest market share business sets lower short-term prices, and the rest follow. This can cause a small business to be driven out.