Tài liệu Microeconomics for MBAs 29 doc

Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 27 27 reflected by the budget constraint segment aY , then the consumer can buy additional units of good X at the much lower price indicated by the segment Xa of the budget constraint. Faced with such a pricing policy, the consumer will be willing to sacrifice Y – Y 1 units of good Y, to buy X 2 units, thereby dissipating all of the consumer surplus. 6 __________________________________ Figure 8.15. Two-Part Pricing A uniform price can lead the individual to buy Y 2 and X 2 . However, a two-part price can lead the individual to buy the same amount of X while reducing the purchases of Y to T 1 , leaving the consumer on a lower utility curve and the seller with more income. ________________________________ Two-part pricing strategies in the real world are not usually calibrated accurately enough to capture an individual’s entire consumer surplus. Also, the same two-part pricing policy normally applies to everyone, even though preferences – and therefore indifference curves – vary from consumer to consumer. Thus, any given two-part pricing strategy will capture more consumer surplus from some than from others. However, such a strategy generally allows suppliers to motivate consumers to pay more for a given quantity of a good than they would under a uniform pricing policy. Given the advantage that suppliers can realize from a two-part pricing strategy, it is not surprising that different variations of such pricing strategies are often encountered. For example, suppliers of electricity almost universally employ at least a two-part pricing schedule, so that the first few kilowatts of power used during the billing period cost the consumer more than subsequent kilowatts. A variation on two-part pricing is the membership fee – an initial charge that entitles the consumer to purchase a product at a lower price. As shown in Figure 8.15, this produces the same effect as straight two-part pricing. Assume that on paying an initial fee of Y Y − , the consumer can buy all the units of X desired at the reduced price, reflected in the budget constraint YX . We can see that the consumer will respond to this pricing policy by paying the fee and purchasing X 2 units of good X, allowing the supplier to capture all the consumer surplus. Automobile- rental firms use a form of this pricing policy when they impose a daily charge plus a per- mile charge. Computer time is commonly obtained by paying a lump-sum rental, which then entitles the individual to use the computer at a low hourly charge. Amusement parks 6 Actually, the consumer is indifferent between buying no X and buying X 2 units of X. But if the consumer buys any of good X at all, it will be X 2 units, and only the slightest decrease in the price of good X along either segment of the budget constraint will make the purchase of X the most attractive alternative. Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 28 28 usually charge an entry fee and then attach no marginal charge to the rides. Surely you can think of other examples of two-part pricing policies. Application: Charity Versus Corner Solutions The underlying assumption that individuals are motivated to maximize their own utility may leave the impression that there is no room in our analysis for concern for others. This is not true. The indifference-curve approach to utility maximization can be used to explain charitable behavior. Nothing in our analysis prevents an individual's utility from being influenced by the consumption of others as well as by his or her own consumption. For example, let's assume that we are considering two individuals – individual D (the donor) and individual R (the recipient) – and that D's utility is a function not only of his own consumption but of R's as well. D's preferences can be expressed with indifference curves showing combinations of D's and R's consumption that provides D with the same utility. Two such indifference curves are shown in Figure 8.16. These curves indicate that when D has a high income relative to R's income, D is willing to transfer come income to R. As expected, however, as D's income declines relative to R's income, the slope of the indifference curve becomes shallower, indicating that D is willing to sacrifice less income to increase R's income by an additional dollar. And if R's income increases too much relative to D's income, envy sets in and individual R's income becomes a “bad” (a “good” with negative value) to D. This is shown by the upward-sloping portions of the indifference curves. Once envy sets in, D's income will have to be increased before he is willing for R's income to increase. _______________________________________ Figure 8.16 Sometimes It Is Better to Give Than to Receive The donor, D, has an initial starting income that is higher than the recipient’s, R’s. By giving income TT’ to R, D moves to a higher indifference curve. This is a case in which R’s welfare affects D’s, leaving D better off by giving than receiving. _________________________________ Now let's assume that D can transfer income costlessly to R, or that R receives an additional dollar for each dollar D gives up. This is reflected in Figure 8.16 by – 1 slope of TT, which shows the different income combinations that D can realize by transferring Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 29 29 income to R. (Here I D and I R represent D's and R's initial incomes, respectively.) Subject to this constraint, D attempts to maximize his utility through charitable contributions, reaching indifference curve I 1 by donating I D – I D ' dollars to R. This increases R's income from I R to I R '. Next we will assume that R's income increases to I R " without any transfers from D. The relevant constraint D faces in donating income to R is now given by T'T' in Figure 8.16. But with this constraint, D maximizes utility by not donating any income to R. At point A, the constraint is steeper than the indifference curve, resulting in a corner solution. D does not donate any income increase to R: the first dollar that D donated would increase R's income by a lesser amount than is required to make D willing to sacrifice $1 of income. Application: Charity and Paternalism Due to an underlying fear that the recipients will not spend the money in their best interests, few organized charities, either public or private, simply transfer income to the needy. Instead of money, charitable contributions normally consist of particular goods and services that the donors believe the recipients should have. It will be helpful to use the indifference-curve approach to consumer behavior to analyze the effect of these in- kind gifts in terms of the intent of the donors and the utility of the recipients. The three indifference curves I 1 , I 2 , and I 3 in Figure 8.17 belong to an individual who is to be the recipient of a donated good – say, bus transportation. Before the donation, the individual's budget constraint with respect to bus transportation and all other goods is defined by line BC. Given this constraint, the individual will maximize utility by choosing bundle A (point A) and consuming bus rides at the rate of X 1 per week. Now we will assume that this individual qualifies for public relief, which takes the form of free bus transportation – something the transit authorities feel people should be encouraged to consume. Letting X be the quantity of free bus transportation received, the budget constraint becomes BDE. Beyond point D, the slope of this budget constraint is the same as BC, reflecting the fact that the regular price must be paid for bus transportation in excess of X . Faced with this new budget constraint, the consumer will maximize utility by choosing bundle D, point D at the kink in the constraint. Consumption of bus transportation will increase from X 1 to X , and utility will also increase because the individual moves from indifference curve I 1 to I 2 . Two objectives have been accomplished by this contribution. First, the recipient's well being was improved; second, the recipient's consumption of bus transit was increased – something those controlling the contribution thought was important. It is worth noting that these two objectives are somewhat in conflict with one another. For example, if the only objective had been to increase the recipient's well being as much as possible, the contribution would have been made in the form of money or some other form of general purchasing power. If instead of X bus tokens, the recipient had received enough money to buy X bus tokens, then the budget constraint would have been FDE. Given this constraint, the individual would have chosen bundle G at point G, consumed Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 30 30 only X 2 units of bus transportation, and reached indifference curve I 3 , thereby attaining a higher utility level than that achieved when the in-kind gift of bus rides was given. Of course, this increase in utility would have been attained at the expense of the people who felt that the individual actually needed X units of bus transportation. _______________________________________ Figure 8.17 In-Kind Charitable Contributions An in-kind charitable contribution can lead to a person buying more of the good, as is the case when the individual moves from A to D (although he would prefer to move to G, but can’t). However. The charitable contribution can also lead to the individual consuming less of the charitable good, which is what happens when the individual moves from A’ to B’. _________________________________ Next, we will consider an individual who, before the receipt of X units of free bus transportation, was consuming a greater quantity than that. The preferences of this individual are represented in Figure 8.17 by indifference curves I 1 ' and I 2 '. Before the gift, BC is the budget constraint and the individual maximizes utility by choosing bundle A' at point A' and consuming X 1 ' units of bus transportation. But after the receipt of X units of bus transit, the budget constraint shifts to BDE and the consumer maximizes utility by choosing bundle B' and point B' and reducing consumption to X 2 ' units of bus transportation. The individual reduced bus-service consumption when this service was given free of charge. This can only occur if the individual regards bus service as an inferior good, which most people do. The gift increases the recipient's real income and motivates a reduction in the consumption of an inferior good as long as the relative price of that good remains constant. And since we assume that the individual was consuming more than X before the gift, the relative price of the marginal unit consumed is not affected by the gift. The effect of giving the recipient X units of bus transportation is the same as giving the individual enough money to purchase that much bus service. This analysis can be applied to the current food-stamp program in the United States. As that program is now structured, people who qualify are given food stamps in specific dollar amounts that can be redeemed for food. If the dollar value of the stamps exceeds the amount the recipients are spending on food, then the program can be expected to motivate a larger increase in food consumption than would result from an equivalent income transfer. But if more money was being spent on food before the program was initiated than the dollar value of the food stamps received after the program Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 31 31 was begun, then there is no effective difference between providing recipients with food stamps or with equivalent amounts of cash. The Demand for Public Goods Early in the book we distinguished two types of goods, private and public goods. To this point we have developed the market demand for a private good. The development of a community’s demand for a public (or community) good is substantially different from the previous construction of the demand for a private good. As we will see, the nature of a public good prevents its provision by private firms in an efficient manner. We can construct the demand for a public good by first noting that each individual has a downward sloping demand for public goods national defense, environmental quality, etc. However, if a unit of a public good is provided, all within the relevant group can receive benefits from it. This is not true of a private good; a unit of a private good benefits only the person who possesses it. Consequently, the community’s demand for a public good must be obtained by vertically adding up the values (as measured by the price) that all within the group place on each unit. The reason for this is simply that all can benefit from each unit; and the relevant question is what is the total value, which all within the group place on all units. This is why we vertically add each unit, to find the total value. To illustrate in the simplest possible terms, consider a community made up of only two people. There is some good, like police protection, from which both can receive benefits simultaneously. Suppose, however, that individual B has a greater demand for police protection than A. This condition is illustrated in Figure 8.18. For the first unit of police protection, A is willing to pay as much as $3, which is an indication of the relative value he places on that unit. B, on the other hand, is willing to pay more, $5 in this example. Both can benefit from the first unit of police protection, and the collective value attached to this unit is $8 ($3 + $5). Since each individual’s demand curve is downward sloping, the relative value attached to each unit declines as the quantity is increased. For the second unit, A is willing to pay $2 and B, $4. Collectively, they are willing to pay as much as $6. For the fourth unit, A is unwilling to pay anything; however, B is still willing to pay as much as $2. From that point on, the collective value of police protection is simply equal to the value which B places on the good. The prices which A and B are willing to pay for each unit are shown and added together in Table 8.2. If we plot the collective value which A and B place on each unit (P A + B in the table) against the quantity, we will obtain a demand curve represented by the darker line in Figure 8.18. This curve represents the demand for a public good or service. It represents what the people in the community are willing to pay in total (if they have to) for each unit of police protection. We talk in terms of the collective value of the community because all people can share in the benefits of the good or service if it is provided. Public officials may be unable to obtain a very accurate picture of the public’s demand for a service like police protection. When people vote for representatives or in a referendum, they vote for or against or yes or no. Their votes are only a crude indication Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 32 32 of the intensity of their preferences for the public good. This is so because all votes count the same. The politicians are forced to try to sense the mood of the people, and in doing that they may provide many people with an opportunity to misrepresent their true demand for the good, that is, how much they are willing to pay. More will be said on this in later chapters. The important point to understand at this juncture is the difference in the construction of the demand for public and private goods. _________________________________ FIGURE 8.18 The Public Good Demand Curve The public good demand curve, D A+B , is equal to the vertical summation of the demands of the individuals A and B. The curves are added vertically because both individuals A and B can simultaneously benefit from each unit of police protection provided. _________________________________ TABLE 8.2 Construction of a Public Goods Demand Curve Units of Police Protection (1) Price A Is Willing To Pay for Each Unit (DA) (2) Price B Is Willing To Pay for Each Unit (DB) (3) Public Goods Demand: Price A and B Are Willing to Pay for Each Unit When They Act Collectively (DA+B) (4) 0.5 $3.50 $5.50 $9 1 3 5 8 2 2 4 6 3 1 3 4 4 0 2 2 5 0 1 1 6 0 0 0 Note: The Public Goods demand curve in Figure 8.9 (the darker line) is obtained by plotting the prices that A and B are collectively willing to pay for each unit in column (4) against their respective units in column (1). Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 33 33 Irrationality and the Law of Demand So far we have been discussing demand in terms of rational behavior. Even if some consumers behave irrationally, the law of demand will apply. As long as some people in the market respond rationally, demand will change with a change in price. For instance, many people buy cigarettes because they are addicted to them. At times habitual smokers may not consider price in making their purchases. Therefore we cannot expect the quantity they buy always to vary with price (except to the extent that it affects their total purchasing power). If occasional smokers take price into consideration when they buy, however, their demand for cigarettes will produce the normal downward sloping curve. If we add the quantity bought by smokers who are addicted to the quantity bought by those who are not, the total market demand curve will slope downward (see Figure 8.19). At a price of P 1 , Q 1 cigarettes will be bought by addicted consumers, and Q 3 – Q 1 cigarettes will be bought by occasional consumers. If the price then rises to P 2 , the total quantity bought will fall to Q 2 , reflecting a predictable drop in the quantity purchased by occasional consumers. This kind of reasoning can be extended to impulse buying. Some people respond more to the packaging and display of products than to their price. Their demand may not slope downward. As long as some people check prices and resist advertising, however, the total demand for any good will slope downward. Store managers must therefore assume that changes in price will affect the quantity demanded. The fact that some people may behave irrationally reduces the elasticity of demand but does not invalidate the concept of demand. 7 ___________________________________ FIGURE 8.19 Demand Including Irrational Behavior If irrational consumers demand Q 1 cigarettes no matter what the price, but rational consumers take price into consideration, market demand will be D 1 . The quantity purchased will still vary inversely with the price. 7 In fact, one economist has demonstrated rather convincingly that the assumption of rational behavior is unnecessary to the construction of a downward-sloping demand curve. The curve, he argues, can emerge from completely random behavior on the part of consumers. Gary S. Becker, Economic Theory (New York: Alfred A Knopf, 1972), pp. 19—23. Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 34 34 Lagged Demands and Network Externalities Almost all microeconomics textbook do what we have done with demand, they provide a lengthy discussion of the demand for a “standard” good. They will explain that the quantity of the good purchased will be related to the price of the good in question and a number of other considerations (such as weather, income, and the prices of other goods), as we have stressed. The lower the price of a candy bar, for example, the greater the quantity purchased, and vice versa. This inverse relationship between price and quantity is so revered in economics that it has a special label, the “law of demand.” Nothing will be said by most textbooks about how the benefits received by any one candy bar buyer in one time period will affect the benefits received in subsequent time periods, or, rather, how the consumption level today will affect the demand in the future. Little or nothing will also be written about how the benefits (and demand) depend upon how many other people have bought candy bars, all of which is understandable. The benefit that one person gets from eating a candy bar in one time period does not materially affect the benefits received from eating another bar later and is also not materially affected by how many other people buy bars in the various time periods. People just buy and consume candy bars independent of one another, and couldn’t care less about how much other people enjoy their candy bars. This is not true for two special classes of goods called lagged demand goods and network goods. A lagged demand good is one in which consumption today affects consumption tomorrow (or future time periods). A lagged demand good has one defining feature: the greater the quantity purchased today, the greater the demand tomorrow. Good examples of lagged demand goods include cigarettes, alcohol, and street drugs, given that they tend to be addictive in consumption. As we will see, the theory of lagged demand is similar to the theory of “rational addiction,” or the view that before consumption begins, people can rationally weigh the long-term costs and benefits, or pros and cons, of consuming goods that can be physically compelling in consumption. A network good is a product or service the value of which to consumers depends intrinsically on how many other people buy the good. A network good has one defining feature: The greater the number of buyers, the greater the benefits most, if not all, buyers receive. These goods are said to exhibit “network effect” or “network externalities,” which has been appropriately described by one economist as “a phenomenon in which the attractiveness of a product to customers increases with the use of that product by others.” 8 Good examples of network goods include telephones, fax machines, and computer software. One person’s telephone is useless someone else owns a phone, and the more people who buy phones, the greater the value of the phone is to everyone, because more people can be called. 8 Franklin M. Fisher, Direct Testimony, U.S vs. Microsoft Corporation, Civil Action No. 98-1233 (TPJ), filed October 14, 1998, p. 15. (as downloaded from http://www.usdoj.gov/atr/cases/f2000/2057.pdf). Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 35 35 As you can see, lagged demand and network goods have much in common, the interconnectedness of consumption, which has important implications for pricing strategy. Lagged Demands One of the authors of this book, Lee, was involved in the development of the theory of lagged demands. 9 He and David Kreutzer have argued that, for some purposes, the demands that apply to a given product but that are evident in different time periods should be viewed as interdependent, with consumption in the future critically tied to consumption in the current time period, whatever the elasticity of the current demand (or whatever the technical capacity of consumers to respond to price changes in the current time period) might be. From this perspective, a lagged demand good is one in which the future good is a complement to the current good; they go together. According to Lee and Kreutzer, The crucial assumption behind our analysis is that lags exist in the demand for the resource; future demands are influenced by current availability. The demand for petroleum is clearly an example of such a lagged demand structure, with future demand for petroleum significantly influenced by investment decisions made in response to current availability. 10 Hence, it follows that like all complements, the future demand for a product depends upon the current price for the same good. Behind such an obvious point lie important insights that might otherwise go unrecognized from the usual view of demand (and, as we will see, excise taxes and other policy topics). As a consequence of the complementarity in consumption over time, firms faced with lagged demand have an incentive to lower their current price in order to stimulate future sales. They might even might charge a price in (or marginally lower their price toward) the inelastic range of their current demand curves, in spite of the fact that they lose current revenues from doing so, just so they can stimulate a greater future demand, which will permit them to raise their future prices and which can lead to greater generate profits in the future. This is true, of course, so long as the producers’ rights to exploit future profits are not threatened. What is interesting about this perspective is that under conditions of lagged demand, a cartel may form not with the intent of raising the group’s current price, but with the intent of lowering the current price and expanding demand, and profits, in the future. 11 9 Dwight Lee and David Kreutzer, “Lagged Demand and a ‘Perverse’ Response to Threatened Property Rights,” Economic Inquiry, vol. 20 (October 1982), pp. 579-588. 10 Lee and Kreutzer, “Lagged Demand and Property Rights,” p. 580. 11 Such a cartel may also dissolve because of rampant cheating involving price increases, with all firms seeking to benefit from the greater demand stimulated by lower prices charged by other cartel members. Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 36 36 Also, it needs to be noted that the conventional treatment of demand, under which the demand tomorrow is unrelated to the consumption level today, holds that the potential for future threats to the stability of property rights could lead to “over-production” during the current time period. This is the case because if a firm – for example, an oil company – fears it will lose its property rights to its reserves, then it has an incentive to increase production and expand sales today. Never mind that the added supply oil might depress the current price. The oil firm can reason that if it doesn’t pump the oil out of the ground in the short term, it will not have rights to the oil in the future. For goods subject to the lagged demand phenomenon, any looming threat to property rights can cause some firms to do the opposite, reduce production of oil (or the exploitation of any other resource), hike the current price, and extract whatever profits remain. When its property rights are threatened, the firm no longer has an incentive to artificially suppress its current price in order to cultivate future demand. Rational Addiction Two economists from the University of Chicago, Gary Becker and Kevin Murphy, have developed a similar line of argument. The major difference is that their purpose was primarily to develop an economic theory of “addiction,” which is a general concept also intended to suggest a tie between current and future consumption of a good or activity. 12 The tie-in, however, is physical (or maybe chemical) as in the case of cigarettes. People’s future demand for smokes can be tied to their current consumption simply because of the body’s chemical dependency on the intake of nicotine. As in the case of lagged demand goods, producers of addictive goods have an incentive to suppress the current price of their good – cigarettes – in order to stimulate the future demand for it. The lower the current price, the greater the future demand and the greater the future consumption. This complementarity in consumption for an addictive (and lagged demand) good is illustrated in Figure 8.20. At price P 1 in the current time period, the consumption will be Q 1 in the current time period. However, because of that current consumption level, the demand in the future rises to D 2 . At a price of P 2 , current consumption rises to Q 2 , but the future demand rises to D 3 . You can imagine that at even lower prices, P 3 , there will be some even higher demand curve, D 3 , in the future time period. You can see in the illustration why firms have an incentive to lower the current price: the future demand rises. With other complement goods, if the price of one complement goes down and more of it is sold, then the demand for the other complement will go up, with its price rising. The same thing happens in this case. The only difference is that the complements are the same good but consumed in different time periods. The current demand for one addictive good, cigarettes, might be highly inelastic, as is commonly presumed in microeconomics, but this does not mean that the long-run demand is necessarily inelastic. As illustrated in Figure 8.20, the short-term demand 12 Becker and Murphy, “Rational Addiction.” . of the public’s demand for a service like police protection. When people vote for representatives or in a referendum, they vote for or against or yes or. To Pay for Each Unit (DA) (2) Price B Is Willing To Pay for Each Unit (DB) (3) Public Goods Demand: Price A and B Are Willing to Pay for Each