Atin Basuchoudhary (Virginia Military Institute) Christopher Metcalf (Federal Trade Commission) Kai Pommerenke David Reiley (University of Arizona) Christian Rojas () (University of Massachusetts-Amherst) Marzena Rostek (University of Wisconsin-Madison) James Stodder (Rensselaer Polytechnic Institute-Hartford)
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The authors present a classroom experiment designed to illustrate key concepts of third-degree price discrimination. By participating as buyers and sellers, students actively learn (1) how group pricing differs from uniform pricing,(2) how resale between buyers limits a seller's ability to price discriminate, and (3) how preventing price discrimination might reduce welfare. The exercise challenges sellers to set optimal prices against unknown demand curves by using a concrete story of pharmaceutical pricing to American and Mexican consumers. By working through profit calculations, students arrive at the optimal seller prices in three different settings: uniform pricing, price discrimination to two groups, and price discrimination to two groups who can resell to each other. The experimental design encourages students to converge reliably to the theoretical predictions. Classroom discussion can focus on real-world examples of price discrimination and on regulatory policy questions in industrial organization and international trade.
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Find related papers by JEL classification: A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
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