Micro Ch.16

Law of One Price
identical products should sell for the same price everywhere
Arbitrage
If a product sells for different prices, it will
be possible to make a profit
Transaction cost
which are the costs in time and other resources incurred to carry out an exchange
or because the product cannot be resold
Price Discrimination
occurs
if a firm charges different prices for the same product
Requirements for price discrimination
(1) A firm must possess market power; (2) some consumers must have a greater
willingness to pay for the product than other consumers, and firms must be able to know what customers
are willing to pay; and (3) firms must be able to divide up—or segment—the market for the product so
that consumers who buy the product at a low price cannot resell it a high price
Odd Pricing
charging $1.99 rather than $2.00
Cost-plus pricing
firms set the price for a product by adding a percentage markup to average
cost
Two-part tariff
require consumers to pay an
initial fee for the right to buy their product and an additional fee for each unit of the product purchased
Yield Management
the practice of continually adjusting prices to take into account fluctuations in demand