The simple case of pricing with market power assumes (a) all consumers are charged the same price, (b) the firm sells one product, (c) demand exists in one time period, and (d) competitors do not pursue pricing games. Economists insist on reviewing what happens as each assumption is relaxed one at a time. But it is clear that in real world all four are relaxed simultaneously. Why does economic analysis insist on such an unrealistic analysis?

Question

Quizplus · Accepted Answer

The Answer of The simple case of pricing with market power assumes (a) all consumers are charged the same price, (b) the firm sells one product, (c) demand exists in one time period, and (d) competitors do not pursue pricing games. Economists insist on reviewing what happens as each assumption is relaxed one at a time. But it is clear that in real world all four are relaxed simultaneously. Why does economic analysis insist on such an unrealistic analysis?

The Simple Case of Pricing with Market Power Assumes (A)