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Definition
| bidding late (in this cas as in an auction) - esp relevant in online auctions, e.g. eBay |
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–participating in your own auction to create a buzz
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Definition
–threats that deter entry (listed with regards to auctions)
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| Collusion (with regards to auctions) |
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Definition
| buyers get together to submit lower bids and divide the spoils |
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Term
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Definition
–Applies only to common value auctions
–Everyone agrees after the auction what the item is worth but have different private information that helps them formulate their bid
–What does it mean if you won? (You’ve probably overpaid!)
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| For private value goods, when would you bid your real valuation? |
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Definition
•English ascending auction
•Second-price sealed bid (Vickrey)
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Term
| For private value goods, when would you bid slightly less than your valuation? |
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Definition
•Dutch descending auction
•First-price sealed bid
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Term
| What are the three type of ways to "value" goods we have learned in regards to auctions? |
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Definition
–Private value (think non-transferable concert ticket)
–Common value (think oil field)
–Correlated value (think art)
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Term
Explain theRevenue Equivalence Theorem and what assumptions are required for it to hold
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Definition
–Does not matter which of the four methods you use, you raise same revenue
–Works only for private value goods (+ risk-neutral bidders)
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| What are some ways you can use auctions? |
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Definition
•Engage in first degree price discrimination
•Find the equilibrium price
•Third degree price discrimination
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Term
1.What is price discrimination?
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Definition
–Charging different prices for essentially the same good
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Term
What conditions are needed for you to be able to price discriminate?
(check all that apply)
a. Occurs primarily in perfectly competitive markets
b. Occurs in monopoly markets
c. Occurs when the seller has pricing power
d. Requires that the seller know who the buyer is
e. Requires no consumer arbitrage
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Definition
a. Occurs primarily in perfectly competitive markets
b. Occurs in monopoly markets
c. Occurs when the seller has pricing power
d. Requires that the seller know who the buyer is
e. Requires no consumer arbitrage
It does not occur in a. perfectly competitive markets. It CAN occur in b. monopoly markets. It CAN occur when c. the seller has pricing It does not require the seller to know d. who the buyer is (think second degree price discrimination. It does require e. no consumer arbitrage.
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Term
Is price discrimination good or bad?
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Definition
–Can increase total surplus
–Consumer surplus may be reduced and producer surplus increased
–Generally say welfare effects are ambiguous
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Term
| What are the three types of price discrimination we studied? |
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Definition
–First degree: charge each person their maximum willingness to pay
–Second degree: different prices for different amounts (“bulk discount”)
–Third degree: different prices for different people types (“student discount”)
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Term
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Definition
As monopolies are allocatively inefficient, the deadweight loss is the loss of customers who now can not purchase because the price is too high for them.
[image] |
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Term
| What is the total of consumer and producer surplus? |
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Definition
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Term
| How does price sensitivity impact the prices you charge in third degree price discrimination? |
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Definition
–Charge customers who are most price sensitive lower prices
–Remember, price elasticity of demand = how sensitive to price changes
–So…charge groups with high elasticities lower prices
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Term
| In monopolies, how do marginal cost, marginal revenue, price, and price elasticities of demand relate? |
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Definition
[image]
Remember that we have to look at this for EACH group when doing multiple groups in price discrimination.
–Why within each group? Because otherwise wouldn’t be profit maximising
–Which means: marginal revenue must be the same in each market at the optimal production point
–If in group 1 price is higher than in group 2, notice from the formula this means that elasticity of group 1 must be lower than elasticity of group 2
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Term
| What is the profit outcome of competition? |
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Definition
•Perfect competition leads to equilibrium price, no (economic) profits for producers
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| How does the result of Bertran competition and perfect competition compare? |
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Definition
•Bertrand competition is the same as perfect competition in long term outcome (IF both firms have the same cost structure)
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Term
| In terms of quantities produced, how does Cournot and perfect competition, and monopolies, compare? |
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Definition
| Cournot leads to less production than PC, but more than monopoly, some profits |
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Term
| How do monopolies and Cournot relate in terms of quantities produced, profit, and social surplus? |
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Definition
•Monopoly leads to less production than Cournot, more profit, less social surplus
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Term
| What are the conditions that define perfect competition? |
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Definition
–Identical products
–Many small firms (need not be identical) with equal knowledge
–Free entry and exit
–Firms are price takers
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Term
| What formulas are needed to identify profit maximization in perfect competition? |
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Definition
–Marginal revenue = marginal cost (general)
–Price = marginal cost (perfect competition)
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Term
How do you generate the supply curve of a firm in perfect competition?
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Definition
–Price = marginal cost, so will be prepared to locate on MC curve
–MC curve is firm supply curve…
–…provided that (1) on upward sloping part and (2) above AVC curve
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Term
| How do you calculate and draw a firm's demand curve in perfect competition? |
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Definition
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Term
| How do marginal costs, quantity, and prices relate when trying to profit maximize in a competitive market? |
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Definition
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Term
| Draw a graph illustrating consumer and producer surplus for a firm's price/quantity graph in a perfectively competitive market |
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Definition
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| Draw a graph illustrating the effects of a price ceiling below the equilibrum price in a perfectly competitive market. |
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Definition
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Term
I intend to sell to pensioners and backpackers at different prices. This is a form of: |
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Definition
Third degree price discrimination since I know who the groups are. |
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