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This is the first of a series of four chapters that depart from the basic models of oligopoly and look at price and non-price strategies. This fourth part of the book is particularly important in courses with an emphasis on the strategy and marketing aspects of IO (especially the marketing aspects).
Various IO texts are divided into "monopoly" and "oligopoly" parts, with each part then subdivided according to the different issues. In this text, the classification is by issue, with each issue including both the monopoly and the oligopoly cases. (In this chapter, for the most part, we consider the monopoly case.)
There is a discussion regarding the classification of types of price discrimination, namely the classification, due to Pigou, of first-, second- and third-degree price discrimination. Although a paragraph is included in the text, it is probably best to avoid a discussion that is little more than semantics. Instead, the instructor can focus on the different instances of price discrimination using more specific names, such as self-selection, group discrimination, and so on.
One possible assignment for this chapter is to provide students with a demand system and ask them to select prices to maximize profit; and then compare the solution chosen by each student with the optimal solution. Based on the author's experience, such exercise has a number of advantages. First, it gives students the opportunity to take a hands-on approach to the problem of price discrimination. Second, it greatly motivates students to learn what the optimal solution is. [I am hoping to post a demand system for this purpose some time soon.--LC]