![]() ![]() Price skimming and penetration pricing are two opposing long-term strategies. This is illustrated by the graph on the right. With price skimming, Apple will maximize its producer surplus by taking some of the consumer surplus. Lastly, Apple will sell its iPhone at pc which will make category 3 buy the phone. Following this, Apple will sell its product at p2 category 1 has already bought it at p1 and since category 2 will now buy the good at p2 Apple maximizes its profit on category 2 in this case. With price skimming, Apple will, at first, sell its iPhone at p1, thereby maximizing its surplus on category 1. In this case, Apple does not maximize its producer surplus. ![]() And finally, if they set the price at pc, every type of customer will buy the phone at this price, including categories 1 and 2.īelow, the graph on the left illustrates the producer surplus and the consumer surplus in a situation where price skimming is not applied and where Apple opts for setting the pc price from the very beginning. If they decide to set the price at p2, both category 1 and category 2 will purchase the good, but category 1 will buy at p2. ![]() If Apple sets their price at p1 level, only the early adopters (category 1) will buy the product. Now let’s assume that Apple sets a unique and invariable price that does not change over time, or in other words, it does not use price skimming. The reservation price of the three types of customers is respectively p1, p2 and pc, with p1 > p2 >pc (see graph below). Let’s assume that Apple has three types of customers: “early adopters” (category 1), “mid adopters” (category 2) and “late adopters” (remaining category of customers who tend to wait for the price to go down before purchasing). With price skimming, all consumers will be charged at their reservation price, thereby maximizing the profit of the company selling the good. If a consumer is not interested in buying a certain product, his reservation price tends to be zero. The reservation price is the maximum amount they are willing to pay for the good. Economic PrincipleĮvery consumer has a “reservation price” for every product. The price will be further decreased with every year that passes, signifying that more and more consumers will opt for the iPhone. One year after the release however, the price of the iPhone will be decreased and more consumers will therefore be in a position to afford it. And while consumers with very high purchasing power will be prepared to buy the new iPhone at its initial price, most potential consumers would not be able to afford it at the early stages of the product release. Whereas a new iPhone is very expensive, its price decreases gradually over time. The price slowly decreases with time in order to maximize profit by selling the product to other types of customers.Īpple is well-known for its skimming pricing. On the release of a new product, a very high price is set at first in order to maximize profit by selling the good to “early adopters”. Price skimming can be considered as a form of price discrimination. Long-term maintenance agreement pricing.Continuous Ranked Probability Score (CRPS).Quantitative Principles for Supply Chain (Lecture 1.6).21st Century Trends in Supply Chain (Lecture 1.5).Programming Paradigms for Supply Chain (Lecture 1.4).Product-Oriented Delivery for Supply Chain (Lecture 1.3).The Quantitative Supply Chain in a Nutshell (Lecture 1.2). ![]()
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