Can a monopoly extract all consumer's surplus (as it would do if it adopted price discrimination)...

Can a monopoly extract all consumer's surplus (as it would do if it adopted price discrimination) by using block-pricing? What minimum quantity and what price should it set in order to obtain this outcome?

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Expert Solution

Yes, a monopoly can extract consumer surplus by using Block Pricing.Block pricing is a pricing strategy in which identical products are packaged together in order to increase profits by forcing customers to make an all or none decision.The profit maximizing price for a block pricing scheme is the total amount the consumer receives for the product.

In this pricing policy , the minimum quantity is set as a block or bundle of a product. In order to maximise profit firms sell block or bundle of products as an unit and not as individual . The price firm set is the total price of all goods included in the block , and not per unit price. For example: Block pricing is frequently used by supermarkets to extract the most value out of the consumers. An example is a package of toilet paper. Oftentimes the supermarkets will bundle the toilet paper into units of 24 or 48 to force the consumer to buy the large pack or not to buy the pack at all. By packaging the toilet paper in this way, the supermarket can earn a larger profit.

Rahul Sunny answered 1 year ago

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