3. Explain how clip-out coupons in a weekly paper enable companies to identify c

Question

3. Explain how clip-out coupons in a weekly paper enable companies to identify consumers with different willingnesses to pay.

Round's and Piggly Wiggly (shop the pig!) are considering opening a new store in Chicago and have to choose between locating their store in the Lower East Side or locating their store in the north side. Payouts, in millions, are presented in the following table. Circle the equilibrium(s). Now assume that one firm is able to pay the other to locate in another part of town. Is there a more efficient solution to this game? If so, indicate which solution is more profitable and give an example of a payment that would make it a viable equilibrium outcome.

Explanation / Answer

2. Buyers who are price sensitive often clip out coupons and, thus, get the discounted price. Some segments of the population, such as the unemployed, also have more time to clip coupons. However, people belonging to business class and/or who are wealthy people, are not price sensitive and thereby do not take the time to clip coupons.

When a company (monopolist) understands that there are different market segments but cannot identify the segments or cannot charge different prices specifically to those segments, then they resort to different selling techniques that appeals to the different groups. This is known as second-degree price discrimination.

It is also known as value based pricing.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.