CHAPTER11PRICINGWITHMARKETPOWERTEACHINGNOTESThechapterbeginswithamoretraditionaldiscussionofpricediscriminationandthenappliestheanalysisofthird-degreepricediscriminationtointertemporalpricediscriminationandpeak-loadpricing.Thechaptercontinueswithdiscussionsoftwo-parttariffs,bundling,andthedistinctionbetweenbundlingandtying.Althoughtwo-parttariffsandbundlingareusuallynotcoveredatthislevel,thistextstressesanintuitiveunderstandingofhowconsumersurplusisconvertedtoproducersurplus.Thechapterconcludeswithanintroductiontooptimaladvertising.Sincethischapterisuniqueinitscoverage,thereisanextensivesetofexercises.Exercises(1),(3)-(6),(8),and(9)focusonpricediscrimination.Exercises(2),(7),(10),and(13)applythetwo-parttariffmodel.Allothers,exceptforExercise(17),requireanunderstandingofbundling;Exercise(17)isamathematicaltreatmentofadvertising.Manyexercisesrequiresomealgebraicornumericmanipulation.TheAppendixtothechaptercanbedifficultformoststudentsandshouldnotbecoveredinclassunlessyouareteachingamathematicalorbusiness-orientedcourse.ShouldyouchoosetoincludetheAppendix,makesurestudentshaveanintuitivefeelforthemodelbeforepresentingthealgebraorgeometry.Whenintroducingthischapter,highlighttherequirementsforprofitablepricediscrimination:(1)supply-sidemarketpower,(2)theabilitytoseparatecustomers,and(3)differingdemandelasticitiesfordifferentclassesofcustomers.Thediscussionoffirst-degreepricediscriminationbeginswiththeconceptofareservationprice.Thetextusesreservationpricesthroughoutthechapter.SincethediscussionofFigure11.2maybeconfusingtostudents,analternativepresentationcouldbeginwithadiagramsimilartoFigure9.1,withtheadditionofinformationfromFigure10.9.Showthatwithfirst-degreepricediscriminationthemonopolistcapturesdeadweightlossandallconsumersurplus.Also,stressthatwithperfectdiscriminationthemarginalrevenuecurvecoincideswiththedemandcurve.First-degreepricediscriminationisbestfollowedbythediscussiononthird-degree,ratherthansecond-degree,pricediscrimination.Whenyoudocoversecond-degreepr...
