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Price Discrimination and Resale: A Classroom Experiment

Author

Listed:
  • Atin Basuchoudhary
  • Christopher Metcalf
  • Kai Pommerenke
  • David Reiley
  • Christian Rojas
  • Marzena Rostek
  • James Stodder

Abstract

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.

Suggested Citation

  • Atin Basuchoudhary & Christopher Metcalf & Kai Pommerenke & David Reiley & Christian Rojas & Marzena Rostek & James Stodder, 2008. "Price Discrimination and Resale: A Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 39(3), pages 229-244, July.
  • Handle: RePEc:taf:jeduce:v:39:y:2008:i:3:p:229-244
    DOI: 10.3200/JECE.39.3.229-244
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    File URL: http://hdl.handle.net/10.3200/JECE.39.3.229-244
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    Cited by:

    1. Beth A. Freeborn & Jason P. Hulbert, 2011. "Persuasive and Informative Advertising: A Classroom Experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 42(1), pages 51-59, January.
    2. Gerald Eisenkopf & Pascal Sulser, 2013. "A Randomized Controlled Trial of Teaching Methods: Do Classroom Experiments Improve Economic Education in High Schools?," Working Paper Series of the Department of Economics, University of Konstanz 2013-17, Department of Economics, University of Konstanz.
    3. Rojas Christian, 2011. "Market Power and the Lerner Index: A Classroom Experiment," Journal of Industrial Organization Education, De Gruyter, vol. 5(1), pages 1-19, March.

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