When Two-Part Tariffs are Not Enough: Mixing with Nonlinear Pricing

27 Pages Posted: 9 Mar 2010

See all articles by Steffen Hoernig

Steffen Hoernig

Nova School of Business and Economics

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Date Written: February 2010

Abstract

We consider competition in nonlinear tariffs when consumers mix two goods, and ask whether simple two-part tariffs or exclusivity can arise in equilibrium. Contrary to the existing literature, this happens only when consumer types are observable. If they are unobservable, then the equilibrium tariff has decreasing marginal prices even when goods are almost homogeneous, and a third of consumers always mixes goods. Two-part tariffs will never even arise as best responses to arbitrary tariffs.

Keywords: Exclusivity, Mixing goods, Nonlinear tariffs, Two-part tariffs

JEL Classification: L13, L82

Suggested Citation

Hoernig, Steffen and Valletti, Tommaso M., When Two-Part Tariffs are Not Enough: Mixing with Nonlinear Pricing (February 2010). CEPR Discussion Paper No. DP7720. Available at SSRN: https://ssrn.com/abstract=1567302

Steffen Hoernig (Contact Author)

Nova School of Business and Economics ( email )

Universidade Nova de Lisboa
Campus de Campolide
Lisboa, 1099-032
Portugal
+351-213801600 (Phone)

HOME PAGE: http://docentes.fe.unl.pt/~shoernig/

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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