Short Paper Assignment
The Demand Curve and Price Discrimination:
As seen through the lens of two examples of market innovators: Uber and Tesla
Context
An individual firm in a perfectly competitive market sees the demand curve for its product as a horizontal line, at the market price level. The challenge confronting the perfectly competitive firm is not to set the right price for its products, but to choose its output level so that it makes as much profit as it can at the price set by the market.
Oligopoly is the industry structure in which a small number of large firms supply the entire market. Oligopolists may produce either standardized products or differentiated products.
In contrast to the perfectly competitive firms which are facing demand curves that are horizontal at the prevailing market price, firms in imperfect competitive markets are facing downward-slopping demand curves.
Price discrimination is the practice of charging different buyers, different prices for the same good or service. As you know from class and the textbook, a monopolist who can charge each buyer exactly his or her reservation price along the downward-slopping demand curve is maximizing its efficiency.
For a real market example, an analyst noted that “[i]n the Model 3, Tesla managed to engineer an economist’s dream: a near-perfect demand curve. It was launched in 2016 as a $30,000 car. But with demand far outstripping any reasonable supply for years, the company smartly pegged starting prices at almost double that level by prioritizing production of fancier, more high-end configurations.”
In a similar vein, Uber’s business model is designed to match ride prices with actual current demand, with prices sometimes double or triple at times of high demand [from personal experience, Logan to Cambridge can range between $25 to $55!…]. At the same time, another airport route, Sarasota Airport to Venice FL is almost always in the narrow range of $40 – $45…
Assignment
Following are some suggestions for your short paper.
Competitive firms versus Oligopolies:
Are Uber and Tesla oligopolists? Explain why or why not.
Are they price takers or price makers? Explain why.
Once you establish if they are part of a competitive market or part of an oligopolistic market, discuss the way Uber and Tesla are setting the price for their customers:
Does Uber price segregate among customers?
Does Uber price segregate geographically?
If yes, how does it work and what is the reason behind it?
Look at the type of car models that Tesla is manufacturing and examine the way such models are marketed and sold.
What kind of price policy is Tesla employing? Talk about the reservations policy, price discrimination, past or current governmental subsidies.
Is it likely that Tesla would continue to attract enough consumer demand amid the strong competition from traditional automakers? Talk about what is differentiating Tesla’s products, if anything, from its competitors – standardized product or non-substitutional [highly differentiated] product.
Guidelines
The paper should be two to no more than three pages of text, although analytical appendices [graphs, tables, charts, bibliography, etc.] can be added if they are relevant to your reasoned argument [Hint: analytical support always makes for a better argument…]
You should also have a bibliography with at least 2-3 reference sources. Search the internet for relevant financial articles, public fillings of financial data, analysts’ opinions, your own experience and common sense.
Structure
You should have a short Introduction, setting out a clear position, a clear Conclusion which affirms the Introduction, and the main body of the paper discussing your arguments on the position you have taken. Since most of the items mentioned in the conclusion are very much subject to interpretation positively and negatively, you should also present counter-arguments to the opposing point of view from the one you are taking.
[Note: keeping this topic to two-three pages is not easy… It IS actually intentional! Just think of it as writing a concise memo to your CEO on a very important topic, but in a modified, more academic, format.]
Additional Resource
We will also post on Canvas a very thorough guide to writing Economics papers, “Writing Economics”, from the Faculty of Arts and Sciences. It is obviously meant for longer papers, but it will be a useful tool for you to have.
Short Paper Assignment 1010 [Demand Curve and Price Discrimination].docx Download Short Paper Assignment 1010 [Demand Curve and Price Discrimination].docx
Writing Economics.pdf
