This is the Quality Contributions Roundup. It showcases interesting and well-written comments and posts from the period covered. If you want to get an idea of what this community is about or how we want you to participate, look no further (except the rules maybe--those might be important too).
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These are mostly chronologically ordered, but I have in some cases tried to cluster comments by topic so if there is something you are looking for (or trying to avoid), this might be helpful. Here we go:
Quality Contributions to the Main Motte
Contributions for the week of April 3, 2023
Recognition Diplomacy
Contributions for the week of April 10, 2023
Transitive Reasoning
Contributions for the week of April 17, 2023
Identity Politics
Contributions for the week of April 24, 2023
- "What is going in Sudan is a practical demonstration that being a global power does not mean that everything going on in the world is secretly about you."
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Notes -
I think the easy answer here is not to set up a monopoly/cartel in the first place.
However, once you have set up a weak cartel, then give the individual components of the cartel reason to defect from the cartel. Cartels want to restrict output, exactly in line with your example (1). But they can struggle to enforce the restriction internally, since individual members have an incentive to reduce the price. One member could charge 6 and make more individual profits. The hope is that defections build on defections, and the result is the competitive equilibrium of everyone charging 2. (In most cases, the supply curve will be upward sloping instead of constant, so they will still capture some surplus.)
However, if we hand each member the ability to perfectly price discriminate, there is much less incentive to defect. Each member of the cartel simply presents each potential buyer with the price that is their individual willingness-to-pay. At best, you have little mini-competitions where each member considers, say, the buyer who values the good at 5, and presents them with a price of 5-ε. The members of the cartel might haggle a bit over who chooses the biggest epsilon for each individual, but none have much of an incentive to deviate much. Instead, I think we would predict exactly what we see universities do in practice - "competing" primarily on non-price factors. Prestige. Name brand. Exclusivity. That helps them maximize their chances to get those 10 and 9 buyers, selling to them at 9.9 and 8.9. The lower tier universities might offer them prices of 9.8 and 8.8, respectively, since they also know their willingness-to-pay, but they're offering a product that is actually valued lower. If each university offers individual prices that are pretty darn close to the individual willingness-to-pay, adjusted slightly for perceived quality, then consumers are going to make slightly different estimates of value, different members of the cartel will "win" a different set of the customers, and so each buyer will get some surplus, but not much. Mostly noise. It's just an entirely different ballgame when every member of the cartel has quite good information concerning each individual's willingness-to-pay.
But in general, your point is a good one. IIRC, many economists judge the value of price discrimination based on whether it actually increases total output. This is the reasoning behind statements like that of @FlyingLionWithABook:
Would universities actually reduce output if they couldn't price discriminate so perfectly? I'm not sure. Their marginal costs are pretty low.
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