Microeconomic Notes 8 (Penultimate)
Microeconomic Notes 8 (Penultimate) ECON 2022
Popular in Principles of Microeconomics
Popular in Economcs
This 4 page Class Notes was uploaded by Paige Holub on Sunday May 1, 2016. The Class Notes belongs to ECON 2022 at University of Colorado Denver taught by Brian Duncan in Winter 2016. Since its upload, it has received 11 views. For similar materials see Principles of Microeconomics in Economcs at University of Colorado Denver.
Reviews for Microeconomic Notes 8 (Penultimate)
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 05/01/16
Paige DeWitt-Holub “Lecture #16 I. Price Discrimination A. Competition and Arbitrage B. 3 Forms 1. Perfect 2. Non-Linear Pricing 3. Group.” 1 -“Price discrimination”, charging different people for different prices -economically, “-Price discrimination is charging people different prices for different units of the same good, not based in production cost, but bound on demand i. A. Perfect Price Discrimination: The firm charges each person the maximum he or she is willing to pay for each unit of the good. -the profit surplus is unrealistic because there is no way that the person who was going to pay $23 (if they are even willing to pay 23), that they will be able to not just turn to their neighbor and pay $12. By getting information, as a sales person, you try to figure out what kind of price you can offer (salesman), what their lifestyle $ is like. fair. B. Non-linear Pricing – For each person, you want to charge more for the first unit you buy, than the second, or third -Buy one get one half off -you know that people are willing to pay more for the first unit than the second unit (2x for the first, second for the regular) -what is the right price? -The price depends on how much you buy, perhaps something in bulk would cost less as well because it has less packaging etc. III. Group Price Discrimination – Different groups of people get charged different prices, based on their demand -Why do students get student discounts? -Because we are poor? Does it cost less to provide something to students? Good for certain instances like that. 1 Please note that all quotes are taken from the board of Professor Duncan. -exactly the same thing but changing different prices -set a high value and try to get people to pay a high price, and then eventually those who will not pay will pay a lower price ->has to be based on a demand, a sale has to be the same thing, based on a high price of something being sold out of necessity perhaps to make way to something else -tickets to goods, airplanes, tickets vary in price for the same service -movie tickets? based on discounts as well to encourage, not based on production or “cost” of the seating -children’s menu are less/different, so this doesn’t fit this proportion -cars could be paid for at a different price by negotiation -hair cuts, vary by gender – based on demand, it depends -most of things that people pay different prices of for the same good is services (convenience, value, substitutions… all shared characteristics) -you can trade a good, but you cannot trade a service -arbitrage – when you buy a good and then you sell it after, scalpers – harder to create that transaction with services -the person that you’re charging less to, you’re obviously not losing money on that person, and ultimately a person would have an incentive to go somewhere else and other firms could see that you would try to steal that business from another person -to steal a service, what is usually said is that you have to have a monopoly. Brand loyalty. -you are still trying to negotiate the maximum price 4/27 “Lecture #17 I. Game Theory A. Prisoners’ dilemma B. Pure Strategies I. Dominant II. Nash” Game Theory- a formal way of modeling the interactions between agents 1. Agents (players) 2. Strategies (incorporate 1. The choices you can make 2. How you make those choices) 3. Payoffs (what’s the reward if you do this and I do this? – could be win/lose- in economic model, if you do this and I do that they you win this economic model) “Prisoner’s Dilemma” – two individuals are accused of committing a crime, the police arrest them and detain them, and immediately they are sent in separately and are trying to get them to confess -to say that the other person already confessed is that one of the prisoners is trying to turn on another, and to say that you are both guilty of this crime, and to say that you confess than you get the shorter amount of this ultimately they want them both to confess so they have about the same amount of punishment and solve the mystery -game = prison, players = accused criminals, police/attorneys = set up parameters and payoffs (rules) -in the “prisoner’s dilemma”, the players know these three things: 1. If both deny, then each will spend 1 year in jail. (gonna go to trial, not guilty, cost to going to trial, might get lightly condemned for a lesser crime) 2. If both confess, then each will spend 3 years in jails 3. If one confesses and one denies, than the confessor gets 0 years, and the denier gets 6 years. Write-down the “payoff Matrix” -Pure Strategy = I’m going to pick a choice based on what you are doing – reactive -all Dominant choices are Nash, but not the other way around -if A is the best no matter what you do, then why don’t you do that? -Nash Choice= Given what you have chosen, I will chose based on what you are doing Dominant Strategy – my choice is best regardless of the other player(s) choices Nash Strategy - why choice is best given the other player(s) choices ** equilibrium theory, 2 stars signifies Dominant Strategy Equilibrium -depends on how friendly they are? How much time the other person will spend in jail -do we see this in the real world where both prisoners end up confessing and get more jail time? Sometimes! -happens with other degrees in life, someone in our last experiment – why would anyone charge for a price less than $10? – 90% of the time people will start charging less for a product, if you calculate the product, if everyone stuck to $10 then we all would have made $80 -just like getting paid and everyone ended up making $80, someone made $20 -each person saying, if I lower my price then I’ll make more profit, but then everyone begins to realize this -two things that drive this outcome, 1. Prisoners will end up here because they are greedy (going to say you are going to confess and then deny- “greed” “ambition”) – with the firms, we all agree to charge $20-15 2. the other motivating factor is fear with a lesser punishment – (lack of trust for partner, both acting out of fear? Avoid is to confess) -rather take a little than a lot, the different isn’t much so this is almost an insurance policy against going to prison for life -“The Battle of the Sexes” – two people going to different movies as a couple have to make a decision -“Match Pennies Game” – Games without a Nash Equilibrium -Game Theory is explaining exactly what the rules are in all situations -**the key is that there is a formality to this, instead of just a speculative discussion about how people play a game -Game Theory- the idea of “Game Theory” – is the interaction between agents/a few people -once we get to outcomes, prices, and quantities, we get these markets, but it is not exactly the same as other end results -classes in industrial organization, and how they are trying to organized is talked about in this concept of game theory -the thing that makes very simple game theory models is how quickly something simple can become complicated -one’s strategy becomes proportional to how your strategy is, how the strategy depends on one’s strategy – knowledge scheme -a very simple set-up can become very complicated very quickly -John Nash – won the Nobel price, for pioneering the idea of “Game Theory” -while some people did understand the effects of Game Theory before, now people truly did understand how a person is to play a game, in economic terms the interactions/actions are “programmed” -if you pretend that people are myopic, naïve and dumb, pretend that they’re super naïve and get to the same solution, but if you try to solve a problem where everyone is a genius, it is super easy to solve -do the solutions we would get to in the easier round explain how we would get to this result in the real world -simple solution to a complicated problem?
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'