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Relevant market :
Combination of two approaches:
1. Product-based approach 
+=- perceived substitutability
by the consumer
 - characteristics, price, use → elasticity
2. Geographic approach 
+=- homogeneous territory 
from a competition standpoint

Interpretation of cross-price 
elasticity : 
- if = 0 independent goods
- if > 0 substitute goods
- if < 0 complementary goods

Price Discrimination : 
- Definition: Variations in the 
price/cost ratio of the same
good/service sold to different 
buyers.
- Objective: Capture consumer
surplus that would remain
with the consumer when 
single price is charged

Conditions
- have market power
- know each consumer’s willingness to pay and
 identify them
- be able to prevent resale of units purchased at lower
 prices
 
3 Types of Price Discrimination
1st Degree: 
Perfect discrimination where 
price = willingness to pay
2nd Degree: 
Prices vary based on quantities
purchased, with discounts
for large volumes
3rd Degree: 
Market segmentation based on
exogenous criteria

Types of pricing :
1.cost-plus: P = cost + mark-up
2.competitive pricing: 
  P based on competitors
3.skimming strategy: 
  high now, then reduce in 
  the future
4.penetration pricing: 
  low now to enter the market, 
  then increase
5.value-based pricing:
  based on what consumers 
  think the product is worth
  
Competitive Pricing
Three main strategies:
1. Simple: align with competitors
2. Aggressive: below competitors 
->risk of price wars
3. Dismissive price: leader
sets prices based on 
consumers, not competitors