Buffet Pricing

Abstract

This article analyzes a commonly used pricing practice, which we call "buffet pricing," in which for a fixed entry fee consumers can consume an unlimited quantity during a specified period of time. When consumers are homogeneous in preferences, this form of pricing can be more profitable than a two-part tariff if the total cost under a two-part tariff is greater than the "net" total cost under buffet pricing. For heterogeneous consumers, depending on the distribution of consumer types and the relative magnitudes of transaction and production costs, buffet pricing can also be more profitable than two-part tariffs.

JEL Classification: L11