A seller is selling some production to some buyers. Buyer's utility function is given...
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A seller is selling some production to some buyers. Buyer's utility function is given by: u(v,q,t) = V.q-t Her willingness to pay for quality: v E{1,2,3}. q: quality of product t: price (monetary transfer) Seller has cost of production: c(q) = q2 The profit is given by: t - c(q) Seller does not know buyer's willingness to pay but knows the distribution: Prob(v = 1) = ; Prob(v = 1) = 1 ; Prob(v = 3) = * Solve for the second degree price discrimination pricing strategy. (Hint: Seller wants the lowest type to participate and does not want high type to pretend to be low type.]
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