Make a case that both groups of customers will be satisfied with the deal and that this is a perfectly legal form of pricing in a business-to-customer relationship

Discussion 5

For this discussion, use the following hypothetical scenario as the basis for your response:

Your business partner is strongly opposed to your proposal to charge your largest customers lower prices for your web-based services than what you charge your smaller customers. She is arguing it is unethical, unfair, and possibly illegal.

Address the following in your discussion post:

Make a case that both groups of customers will be satisfied with the deal and that this is a perfectly legal form of pricing in a business-to-customer relationship.

. What degree is this type of price discrimination?

. How will the plan increase revenue?

. Why will both groups of customers be satisfied with the deal?

. Why is this a legal form of pricing?

Discussion 6

We consider a sequential-move game in which an entrant is considering entering an industry in competition with an incumbent firm. There are several possibilities of how this sequential game will be played. We want to use the Froeb rule of “look ahead and reason back.”

Instructions

· Play and analyze the game. Can, and how does, the entrant succeed? Is the incumbent ever in control of this game? What is the Nash equilibrium?

. You may wish to review the old game known as Duopoly, as well as Antoine-Augustin Cournot, to help inform your post.

ANSWER

Discussion 5:

1. The degree of this type of price discrimination is known as two-part tariff pricing, where the customer pays a fixed fee for access to a product or service and a variable fee based on the amount they consume.
2. This plan would increase revenue as the lower prices for large customers would incentivize them to increase their consumption, and the revenue from this increased consumption would outweigh the revenue lost from the lower prices. Additionally, charging smaller customers higher prices would make up for the revenue lost from the lower prices for large customers.
3. Both groups of customers will be satisfied with the deal because the large customers will benefit from lower prices and increased consumption, while the smaller customers will still be able to access the service at a higher price that compensates for the lost revenue from the lower prices for large customers.
4. This is a legal form of pricing as long as it doesn’t violate any anti-trust laws or discriminatory pricing policies. The legality of this type of pricing is determined by the Robinson-Patman Act, which allows firms to offer different prices to different customers as long as the differences are based on cost savings or meeting competition.

Discussion 6:

The Froeb rule of “look ahead and reason back” in this sequential-move game means that the entrant should consider the possible moves and strategies of the incumbent and then reason back to determine the best possible action.

In the Duopoly game, the entrant can succeed by being the first mover and setting a price lower than the incumbent, thereby attracting customers and increasing market share. However, the incumbent may respond by lowering their prices, and the entrant must consider this response when making their next move.

The incumbent is not always in control of this game as the entrant has the ability to set the initial price and disrupt the market, potentially putting the incumbent at a disadvantage.

The Nash equilibrium in this game is a state where both the entrant and incumbent have reached a stable pricing strategy, and neither has an incentive to change their strategy given the other player’s strategy.