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On Two-Part Tariff Competition in a Homogeneous Product Duopoly

37 Pages Posted: 28 Sep 2012  

Krina Griva

Athens University of Economics and Business - Department of Economics

Nikolaos Vettas

Athens University of Economics and Business - Department of Economics; University of Athens - Faculty of Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2012

Abstract

We explore the nature of two-part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage rates. Competition in only one price component (the fixed fee or the rate) may allow both firms to enjoy positive profits if the other price component has been set at levels different enough for each firm. Endogenous market segmentation emerges, with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm. We therefore characterize how fixing one price component indirectly introduces an element of product differentiation to an otherwise homogeneous product market. We also examine the crucial role that non-negativity constraints play for the nature of market equilibrium.

Keywords: Market segmentation, Non-linear pricing, Two-part tariffs

JEL Classification: D43, L13

Suggested Citation

Griva, Krina and Vettas, Nikolaos, On Two-Part Tariff Competition in a Homogeneous Product Duopoly (August 2012). CEPR Discussion Paper No. DP9106. Available at SSRN: https://ssrn.com/abstract=2153487

Krina Griva (Contact Author)

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece

Nikolaos Vettas

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+30 210 8203179 (Phone)

University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece
+30 210 8203179 (Phone)

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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