1. Consider the market for printers in Australia. Briefly describe and define the market structure. Provide arguments and suggestive evidence in support of your claims. Your discussion could address issues such as the number of sellers, product characteristics, how price is determined, whether firms make profits and entry/exit to this market.
According to the ACCC, HP engaged in "false, misleading or deceptive conduct" in a market related to printers: printer ink cartridges.
2. From the viewpoint of consumers, explain the relationship between printers and printer ink cartridges. Link this to elasticity and describe how a change in the price for printers impacts on the demand for cartridges. Illustrate in a diagram.
3. Firms usually produce both printers and ink cartridges. Suppose printers and cartridges are priced independently by firms (as unrelated goods), and cartridges from any brand can be used in any given printer.
If all firms start limiting the use of other brands of cartridges in their printers, how do weexpect this to impact on the demand for a firm'scartridges and the price it can charge for its cartridges? Carefully explain the impact of this change and illustrate this in a diagram. State any assumptions you make. [You can ignore the impact on the demand for printers.]
In reality most printers only operate with own-brand cartridges. Firms are very aware that printers and cartridges are related goods for consumers and aim to extract consumer surplus based on this knowledge. If firms know the willingness to pay of consumers for "printing" (i.e. the combination of a printer and a few cartridges over the lifetime of the printer), they can price printers and cartridges in a different way.
4. Which pricing strategy is compatible with the idea that most printers only operate with own-brand cartridges, and how does HP manage to extract consumer surplus from its customers in that context? Carefully apply and explain the pricing strategy, state any assumptions you make and illustrate in a diagram where possible. [Please focus on pricing strategies discussed in class. To think about: Do you think HP manages to extract all consumer surplus? Or does it face limitations in applying this pricing strategy?]