EM c10 pricing strategies for the firm

markup pricing
calculating the price of a product by determining the average cost of producing the product and then setting the price a given percentage above that cost

MR = P(1+1/ep)
|ep|>1 elastic MR>0
|ep|<1 inelastic MR<0
|ep|=1 unit elastic MR=0

Profit maximization and markup pricing
MR=MC ~ P=[ep/(1+ep)]MC

companies usually use average variable cost to replace MC in reality
P=average variable cost + (m)(average variable cost)
=(1+m)avc
m = -1/(1+ep)

price discrimination
the practice of charging different prices to various groups of customers that are not based on differences in the costs of production

marginal benefit
the valuation that a consumer places on each additional unit of a product, which is measured by the price of that product

total benefit
the total amount of money consumers are willing to pay for a product rather than go without the product

consumer surplus
the difference between the total amount of money consumers are willing to pay for a product rather than do without and the amount they actually have to pay when a single price is charged for all units of the product

first-degree price discrimination
a pricing strategy under which firms with market power are able to charge individuals the maximum amount they are willing to pay for each unit of the product

second-degree price discrimination
a pricing strategy under which firms with market power charge different prices for different blocks of output

third-degree price discrimination
a pricing strategy under which firms with market power separate markets according to the price elasticity of demand and charge a higher price(relative to cost) in the market with the more inelastic demand
Personalized pricing
Another name for first-degree price discrimination, in which the strategy is to determine how much each individual customer is willing to pay for the product and to charge him or her accordingly.

group pricing
Another name for third-degree price discrimination, in which different prices are charged to different groups of customers
based on their underlying price elasticity of demand.


Lock-in
Achieving brand loyalty and a stable consumer base for a product by making it expensive for consumers to switch to a substitute product.


network externalities
These result when the value an individual places on a good is a function of how many other people also use that good.

Versioning
Offering different versions of a product to different groups of customers at various prices, with the versions designed to meet the needs of the specific groups.


bundling
Selling multiple products as a bundle where the price of the bundle is less than the sum of the prices of the individual products or where the bundle reduces the dispersion in willingness to pay.


Promotional pricing
Using coupons and sales to lower the price of the product for those customers willing to incur the costs of using these devices as opposed to lowering the price of the product for all customers.


Two-part pricing
Charging consumers a fixed fee for the right to purchase a product and then a variable fee that is a function of the number of units purchased.

could be bigger than the profit at the maximazation point