Mixing Goods with Two-Part Tariffs

Abstract

We consider a market where consumers mix content offered by different firms. We show how tariff structures have an impact on firms' profits and efficiency. As compared to pure linear pricing, when firms charge two-part tariffs they make higher profits, while consumers are worse off and the allocation is not first-best since too little mixing occurs. Flat subscription fees make mixing unattractive and are Pareto-dominated by all the other types of tariffs.

Keywords: Two-part tariffs, flat fees, combinable products, pay-per-view

JEL Classification: L13, L82