Economics

An internet company currently charges a single price to all of its customers of 30 per month for ultra-fast broadband. The CEO of the company consults students from Lancaster University as to whether there are alternative pricing strategies that might bring the firm greater profits.

(1) The CEO is very keen to explore the option of perfect price discrimination. Using an appropriate diagram, explain to her how this would work in practice.

(2) Having heard your explanation, the CEO asks if you could explain block pricing as a way around the problems of implementing perfect price discrimination. In preparing your advice, she asks you to consider the difference in her customers willingness to pay for access to the service.

(3) The CEO is also keen to explore differences between the company's consumers and wonders whether these effectively separate markets could be exploited to increase the company's profits. What would you advise?

(4) Having considered the options suggested to her, the CEO decides that the charging different groups of consumers different prices is the strategy she wishes to adopt. How should she determine which groups pay which prices?