Chapter 07 - Pricing with Market Power
Chapter 07 - Pricing With Market Power
CHAPTER 7
PRICING WITH MARKET POWER CHAPTER SUMMARY This chapter extends the analysis in previous chapters to examine pricing decisions in greater detail. It starts by reviewing the benchmark case of charging one price to all customers. It then examines more sophisticated pricing policies that can be used to increase profits. CHAPTER OUTLINE
PRICING OBJECTIVE BENCHMARK CASE: SINGLE PRICE PER UNIT
Profit Maximization Relevant Costs Price Sensitivity Estimating the Profit-Maximizing Price Linear Approximation Cost-Plus Pricing Markup Pricing On the Importance of Assumptions Potential for Higher Profits Managerial Application—Parker Hannifin Increases Profits by Adopting and Economically Sound Pricing Policy Managerial Application—Microsoft’s Market Power and Pricing HOMOGENEOUS CONSUMER DEMANDS Block Pricing Managerial Application—Block Pricing at Hickey-Freeman Two-Part Tariffs PRICE DISCRIMINATION — HETEROGENEOUS CONSUMER DEMANDS Managerial Application—Two-Part Pricing for Capital Goods Managerial Application—As Cigarette Prices Soar, A Gray Market Booms Exploiting Information about Individual Demands Personalized Pricing Managerial Application—Tuition Pricing Group Pricing Managerial Application—Virtual Vineyards Managerial Application—Pricing of Books Using Information about the Distribution of Demands Menu Pricing Coupons and Rebates Managerial Application—Harry Potter: An Example of Price Discrimination
7-1
Chapter 07 - Pricing With Market Power
BUNDLING Managerial Application—Budling Videogames OTHER CONCERNS Multiperiod Considerations Future Demand Managerial Application—Early Use of the Free Sample Managerial Application—Apple Apologizes for Its Pricing of iPhones Future Costs Storable Products Strategic Interaction Legal Issues Managerial Application—Market Segmentation Managerial Application—Apple Settles Antitrust Case by Lowering iTune Prices in Britain IMPLEMENTING A PRICING STRATEGY SUMMARY
CHAPTER 7
PRICING WITH MARKET POWER CHAPTER SUMMARY This chapter extends the analysis in previous chapters to examine pricing decisions in greater detail. It starts by reviewing the benchmark case of charging one price to all customers. It then examines more sophisticated pricing policies that can be used to increase profits. CHAPTER OUTLINE
PRICING OBJECTIVE BENCHMARK CASE: SINGLE PRICE PER UNIT
Profit Maximization Relevant Costs Price Sensitivity Estimating the Profit-Maximizing Price Linear Approximation Cost-Plus Pricing Markup Pricing On the Importance of Assumptions Potential for Higher Profits Managerial Application—Parker Hannifin Increases Profits by Adopting and Economically Sound Pricing Policy Managerial Application—Microsoft’s Market Power and Pricing HOMOGENEOUS CONSUMER DEMANDS Block Pricing Managerial Application—Block Pricing at Hickey-Freeman Two-Part Tariffs PRICE DISCRIMINATION — HETEROGENEOUS CONSUMER DEMANDS Managerial Application—Two-Part Pricing for Capital Goods Managerial Application—As Cigarette Prices Soar, A Gray Market Booms Exploiting Information about Individual Demands Personalized Pricing Managerial Application—Tuition Pricing Group Pricing Managerial Application—Virtual Vineyards Managerial Application—Pricing of Books Using Information about the Distribution of Demands Menu Pricing Coupons and Rebates Managerial Application—Harry Potter: An Example of Price Discrimination
7-1
Chapter 07 - Pricing With Market Power
BUNDLING Managerial Application—Budling Videogames OTHER CONCERNS Multiperiod Considerations Future Demand Managerial Application—Early Use of the Free Sample Managerial Application—Apple Apologizes for Its Pricing of iPhones Future Costs Storable Products Strategic Interaction Legal Issues Managerial Application—Market Segmentation Managerial Application—Apple Settles Antitrust Case by Lowering iTune Prices in Britain IMPLEMENTING A PRICING STRATEGY SUMMARY