Similar to the setup of Khan and Jain\'s paper, assume that a certain retailer o

Question

Similar to the setup of Khan and Jain's paper, assume that a certain retailer operates two stores, each selling two sizes of Tylenol bottles (50 and 100 tablets). The demands in the first store are Q1, 50 =160-2p1, 50 and Q1, 100 =120-3p1, 100. The demands in the second store are are Q2, 50 = 240-2p2, 50 and Q2, 100 = 40-P2, 100. Prices in these equations are expressed in dollars per 100 tablets Assume that all costs are zero. What are the optimal prices and the optimal profit if the retailer can not discriminate based on place (location of the store) or based on quantity? What are the optimal prices and the optimal profit if the retailer can discriminate based on place, but cannot discriminate based on quantity? What are the optimal prices and the optimal profit if the retailer can discriminate based on quantity, but not based on place? What discrimination mechanism (place or quantity) contributes more to the profits? How does it fit the story in Khan and Jain?

Explanation / Answer

Its the Third degree type.In third degree price discrimination, price varies by attributes such as locationor by customer segment, or in the most extreme case, by the individual customer's identity; where the attribute in question is used as a proxy for ability/willingness to pay. Additionally to third degree price discrimination, the supplier(s) of a market where this type of discrimination is exhibited are capable of differentiating between consumer classes. This method of discrimintation is also one of the most difficult to adopt because it requires the company knows each of its customers perfectly at each level of consumption (. This can best be seen in car dealers, where the price on the car is negotiable, and the dealers job is to get the most out of the consumer as possible, the consumer surplus will be 0. In some cultures, bargaining for goods and services, i.e., first degree price discrimination is the norm so the major profiting factor based o the discrimination will be the outlook of the bottles

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