Inter-temporal Price Discrimination.
Suppose that technophiles are willing to pay $400 now for the latest iPhone, but only $300 if they have to wait a year. Normal people are willing to pay $250, and their desire to purchase does not vary with time. Ignore the time value of money and compute the optimal pricing scheme of the iPhone. Assume that there are equal numbers of each customer type, and that the MC of the iPhone is $100
You sell 1/3 of the world an iphone at $400. 1/3 a year later for $300.00 and after 1/3 of the world at $250. Those people would not buy unless price is dropped so you get your initial huge profit on the coustomers that can not wait then continue to drop price until all consumers that want your product have purchased it at the price they are willing to spend. That will have the optimal purchases of the product.
To determine the optimal pricing scheme for inter-temporal price discrimination in this scenario, we need to consider the different customer types and their willingness to pay at different time points, as well as the marginal cost of the iPhone.
Given the information provided, let's analyze the pricing scheme step-by-step:
1. Identify the customer segments:
In this case, we have two customer segments - technophiles and normal people. Technophiles are willing to pay $400 now or $300 in a year, while normal people are willing to pay $250 at any time.
2. Determine the marginal cost:
The marginal cost (MC) of the iPhone is given as $100.
3. Calculate the optimal prices for each customer segment:
To maximize profits, we need to set different prices for each segment at different times.
For the technophile segment:
- If they buy now, the price should be set at their maximum willingness to pay, which is $400.
- If they choose to wait a year, the price should be set such that it is preferable for them to wait rather than buying now. Therefore, the price should be lower than $400, but higher than their willingness to pay in a year, which is $300. Let's assume a price of $350.
For the normal people segment:
- Since their willingness to pay does not vary with time, we can set a constant price. To maximize profits, we need to set the price at their maximum willingness to pay, which is $250.
4. Calculate the profit per unit for each customer segment and time:
Now, let's calculate the profit per unit for each customer segment and time:
For technophiles buying now:
Profit per unit = Price - Marginal cost = $400 - $100 = $300
For technophiles waiting a year:
Profit per unit = Price - Marginal cost = $350 - $100 = $250
For normal people at any time:
Profit per unit = Price - Marginal cost = $250 - $100 = $150
5. Calculate total profit:
Since there are equal numbers of each customer type, we can calculate the total profit by summing the profits per unit for each segment and time:
Total profit = (Profit per unit for technophiles buying now) + (Profit per unit for technophiles waiting a year) + (Profit per unit for normal people at any time)
Total profit = ($300 + $250 + $150) * (number of customers of each type)
By calculating the total profit, you can determine the optimal pricing scheme of the iPhone in this inter-temporal price discrimination scenario.