Two-Part Tariffs with Quality Degradation
34 Pages Posted: 10 May 2006
Date Written: March 23, 2006
Abstract
There is a gap between the recommendations of the theory of second degree price discrimination and the practices of firms that target consumer segments with varying willingness to pay with two or more distinct tariffs. We present a model where consumers' private information is single dimensional and the allocation rule is two-dimensional. In contrast to the established result in nonlinear pricing, we find that the per-unit price may be non-monotonic: low-demand consumers face a two-part tariff with a per-unit price possibly below marginal cost, and even zero, whereas high demand consumers face tariffs with per-unit charges above marginal cost. On the other hand, all consumers but the one on the top of the distribution are faced with a quality restriction, quality being monotonically increasing in type. Finally, we show that this practice increases welfare due to increased consumption efficiency.
Keywords: Price discrimination, two-part tariffs, quantity discounts, telecommunications
JEL Classification: D42, D82, L96
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Revelation and Delegation Principles in Common Agency Games
By David Martimort and Lars Stole
-
Contractual Externalities and Common Agency Equilibria
By David Martimort and Lars Stole
-
Strategic Tax Competition; Implications of National Ownership
By Trond E. Olsen and Petter Osmundsen
-
Multiple Lending and Constrained Efficiency in the Credit Market
By Andrea Attar, Eloisa Campioni, ...
-
Truthful Revelation Mechanisms for Simultaneous Common Agency Games
-
By Fahad Khalil, David Martimort, ...
-
Common Agency Equilibria with Discrete Mechanisms and Discrete Types
By David Martimort and Lars Stole