Strategic Pricing:
Theory, Practice and Policy
Professor John W. Mayo mayoj@georgetown.edu

2
Professor Mayo in Switzerland
Born: Colorado Springs, CO
Air Force Brat
BA – Hendrix College
AM, PhD – Washington University
Other Positions :
1984-1985 Chief Economist,
Senate Small Business Committee
2002-2004 Dean, MSB
2000 –present – Zaeslin Fellow in Law and Economics
University of Basel

3
Mrs. Professor Mayo
(aka Professor Tinsley)

4
Professor Mayo with “Name that fish”

5
Anna (left) and Jessie (right) with…

6
Kirby with …

7
Anna with …

8
Kirby with…

9
Anna with…

10
Nick on Boogie Board

11
Chris doing an A&W advertisement

Strategic Pricing: Economic Theory to
Practice
• Professor John Mayo
• WWZ room 3.51.1
• Office hours – Available by appointment
• E-mail mayoj@georgetown.edu
• Name tags in class

13
Course logistics
• Course Goals
• To provide a keener analytical understanding of the strategy, practice and policy of pricing than available in core classes or other electives.
• Syllabus
• The “Star” system
• Structure
• Interactive Lectures
• Caselets
• Presentations

Course Logistics
• Slides posted before class
• Class schedule may vary depending on inclass discussions
• Read/prepare for class ahead of time
• Economic Approach

Strategic Pricing: Economic Theory to
Practice
• Grading
• Research project 40%
• (Verbal presentation and written paper)
• Final exam 40 %
• Class participation 20%
• Research project: You and your team will identify an economic, policy or strategic pricing issue to study and report back on next Friday.

Some Prior Research topics
• Uncorked: Pricing Virginia wines
• Movie Theater Ticket and Concession Pricing
• Price (gender) Discrimination in Dry Cleaning
• International Price discrimination in Medical Services
• The Role of Product Characteristics in Cereal Pricing
• Beer Pricing in Clubs and Bars
• Pricing of Fitness Clubs in Washington DC
• Competing with “Free” – Museum pricing in
Washington
• The Internet and the Law of One Price
• Pricing ‘Room and Board’ at Universities

17
• Examples of studies
• Pricing of Bowling in the United States
• Pricing and Queuing: The Case of Georgetown
Cupcakes

Why study pricing?
• Pricing is a variable of considerable interest if you are interested in profits, policy or economic science.
• π = p*Q(p) – C(Q(p),w)
• Lerner Index: λ = (p-mc)/p
• P = f(industry structure, X
1
…X n
)
• What Characteristics create “value”?

Why study pricing?
• If you are interested in profits:
• π = p*Q(p) – C(Q(p),w)
• Note that price determine virtually every aspect of the profit function

Why study pricing?
• If you are interested in policy:
• Monopoly power is measured by the
Lerner Index: λ = (p-mc)/p
Frequently heard terms:
Predatory pricing
Price discrimination
Monopoly pricing
Anticompetitive dumping
Price gouging

Why study pricing?
• If you are interested in understanding economic systems
• Every economy must decide:
• What to produce
• How to produce
• How to allocate resources and products
• In a capitalist economy prices are the fundamental signals that drive each of these decisions.
• Fundamental Role of Industrial Structure
• P = f(industry structure, X1…Xn)

22
Unpacking the determinants of “Value”
• Hedonic regression
• Price = f(product characteristics)
• Consider the determinants of the price of a house.
What is the “value” of an extra chimney? An extra bedroom?
• P = f(???)
• square footage,
• lot size,
• chimneys,
• bedrooms,
• baths,
• year built,
• proximity to CBD, etc .)

Maximizing Profit: The Economic
Analytics of Pricing
The Art of Pricing: How to Find the Hidden
Profits to Grow Your Business (Hardcover) by Rafi Mohammed (Author)
List Price: $24.95
Price:$16.47
used & new from $4.37