Book Series
Theories of the Firm
Fifth Edition
Demetri Kantarelis

Chapter 5: The price-discriminating firm and the regulated firm

111-151Business firms such as, among many other, recreation clubs, hospitals/doctors, restaurants/bars, and hotels may be able to raise their profits by practicing price discrimination. The practice is governed by a number of factors most prevalent among them: market competitiveness (the less competitive the market, the easier to price discriminate), governmental regulation (which may be encouraging or discouraging), degree of market isolation (the more isolated the market, the less the fear of arbitrage), price elasticity (consumers in price inelastic markets would be willing to pay higher prices) and ability of clients to purchase in bulk.
1 The price-discriminating firm
1.1 Two-part tariff
1.2 First-degree price discrimination
1.3 Second-degree price discrimination
1.4 Third-degree price discrimination
2 The regulated firm
2.1 Natural monopoly
2.2 Natural monopoly and subaddivity
2.3 Regulation
2.4 Ramsey prices
2.5 Peak-load pricing and capacity-based subsidy
2.6 Rate-of-return constraint regulation
2.7 Regulators' motives
2.8 Alternatives to regulation
2.9 Safety
2.10 Environment
2.11 Internalisation of costs, liability and negligence
2.12 FDA and product screening regulation
3 Summary
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