Essay Assignment Introduction Game Inc. is a monopolist, as it owns the copyright, which means it faces a downward marginal benefit curve and it is a price maker. Part A First-degree price discrimination would be the profit-maximizing pricing strategy for this company. As Games Inc. knows exactly each consumer’s willing to pay in these two countries; it can charge consumers in both countries the highest price they are willing to pay for this product and extract all potential consumer surplus. In doing so, its marginal revenue from selling one more unit of this software is equal to the price of the software; thus, the marginal revenue curve is identical to the demand curve. Recall that firms would produce goods or service to the point …show more content…
Part B Third-degree price discrimination would suit the company in this scenario. This company could separate consumers into different markets, which have different valuation for the software, in this case, America and Australia. However, consumers in the same market value the product the same. The company could charge consumers with less elastic demand a higher price and charge consumers who are more sensitive a lower price. Nevertheless, the company should set the price where marginal cost equals to marginal revenue for both markets. The market where consumers who are less sensitive to price can be profit-maximized by introducing a higher price to avoid too many products being sold due to the price effect, which results the equilibrium moving away from profit-maximizing point. This is the same case with another market. (Guillen 2014) To practice third-degree price discrimination, the company needs to be able to recognize different consumers with different demand elasticity, furthermore, it needs to be able to identify these consumers and prevent resale between these consumers. Part …show more content…
Part B Third-degree price discrimination would suit the company in this scenario. This company could separate consumers into different markets, which have different valuation for the software, in this case, America and Australia. However, consumers in the same market value the product the same. The company could charge consumers with less elastic demand a higher price and charge consumers who are more sensitive a lower price. Nevertheless, the company should set the price where marginal cost equals to marginal revenue for both markets. The market where consumers who are less sensitive to price can be profit-maximized by introducing a higher price to avoid too many products being sold due to the price effect, which results the equilibrium moving away from profit-maximizing point. This is the same case with another market. (Guillen 2014) To practice third-degree price discrimination, the company needs to be able to recognize different consumers with different demand elasticity, furthermore, it needs to be able to identify these consumers and prevent resale between these consumers. Part