Risk-Averse Seller and Two-Part Tariffs

42 Pages Posted: 7 Nov 2010

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Date Written: October 6, 2010

Abstract

Under demand uncertainty, a risk-averse seller adopts marginal-cost pricing when clients are homogenous. When the clients are heterogeneous, the optimal unit price tends to move towards marginal cost as the seller’s risk aversion increases and equals marginal cost if the seller is infinitely risk averse. Two-part pricing yields a lower risk cost than linear pricing and can even eliminate risk costs. Under cost uncertainty the seller charges a risk premium with the optimal unit price monotonically increasing as the seller becomes more risk averse. Such a price increase is usually harmful to buyers.

Keywords: Monopoly, Two-Part Tariff, Risk Aversion

JEL Classification: D21, D42, L11, L12

Suggested Citation

Yin, Xiangkang, Risk-Averse Seller and Two-Part Tariffs (October 6, 2010). Available at SSRN: https://ssrn.com/abstract=1704143 or http://dx.doi.org/10.2139/ssrn.1704143

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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