Strategic Pricing:
Theory, Practice and Policy
Professor John W. Mayo
[email protected]
Professor Mayo in Switzerland
Born: Colorado Springs, CO
Air Force Brat
BA – Hendrix College
AM, PhD – Washington University
Other Positions:
1984-1985 Chief Economist,
Senate Small Business Committee
2002-2004 Dean, MSB
2000 –present – Zaeslin Fellow
in Law and Economics
University of Basel
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Mrs. Professor Mayo
(aka Professor Tinsley)
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Professor Mayo with “Name that fish”
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Anna (left) and Jessie (right) with…
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Kirby with …
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Anna with …
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Kirby with…
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Anna with…
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Nick on Boogie Board
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Chris doing an A&W advertisement
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Strategic Pricing: Economic Theory to
Practice
• Professor John Mayo
• WWZ room 3.51.1
• Office hours – Available by appointment
• E-mail [email protected]
• Name tags in class
Course logistics
• Course Goals
• To provide a keener analytical understanding of the
strategy, practice and policy of pricing than available in
core classes or other electives.
• Syllabus
• The “Star” system
• Structure
• Interactive Lectures
• Caselets
• Presentations
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Course Logistics
• Slides posted before class
• Class schedule may vary depending on inclass discussions
• Read/prepare for class ahead of time
• Economic Approach
Strategic Pricing: Economic Theory to
Practice
• Grading
• Research project 40%
• (Verbal presentation and written paper)
• Final exam 40 %
• Class participation 20%
• Research project: You and your team will identify an
economic, policy or strategic pricing issue to study and
report back on next Friday.
Some Prior Research topics
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Uncorked: Pricing Virginia wines
Movie Theater Ticket and Concession Pricing
Price (gender) Discrimination in Dry Cleaning
International Price discrimination in Medical Services
The Role of Product Characteristics in Cereal Pricing
Beer Pricing in Clubs and Bars
Pricing of Fitness Clubs in Washington DC
Competing with “Free” – Museum pricing in
Washington
• The Internet and the Law of One Price
• Pricing ‘Room and Board’ at Universities
• Examples of studies
• Pricing of Bowling in the United States
• Pricing and Queuing: The Case of Georgetown
Cupcakes
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Why study pricing?
• Pricing is a variable of considerable interest if you
are interested in profits, policy or economic
science.
• π = p*Q(p) – C(Q(p),w)
• Lerner Index: λ = (p-mc)/p
• P = f(industry structure, X1…Xn)
• What Characteristics create “value”?
Why study pricing?
• If you are interested in profits:
• π = p*Q(p) – C(Q(p),w)
• Note that price determine virtually every aspect of
the profit function
Why study pricing?
• If you are interested in policy:
• Monopoly power is measured by the
Lerner Index: λ = (p-mc)/p
Frequently heard terms:
Predatory pricing
Price discrimination
Monopoly pricing
Anticompetitive dumping
Price gouging
Why study pricing?
• If you are interested in understanding economic systems
• Every economy must decide:
• What to produce
• How to produce
• How to allocate resources and products
• In a capitalist economy prices are the fundamental signals that
drive each of these decisions.
• Fundamental Role of Industrial Structure
• P = f(industry structure, X1…Xn)
Unpacking the determinants of “Value”
• Hedonic regression
• Price = f(product characteristics)
• Consider the determinants of the price of a house.
What is the “value” of an extra chimney? An extra
bedroom?
• P = f(???)
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square footage,
lot size,
chimneys,
bedrooms,
baths,
year built,
proximity to CBD, etc .)
Maximizing Profit: The Economic
Analytics of Pricing
The Art of Pricing: How to Find the Hidden
Profits to Grow Your Business (Hardcover)
by Rafi Mohammed (Author)
List Price:$24.95
Price:$16.47
used & new from $4.37