37 Pages Posted: 28 Sep 2012
Date Written: August 2012
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: 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
This is a CEPR Discussion Paper. CEPR charges a fee of $5.00 for this paper.Login using your CEPR Personal Profile
File name: DP9106.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.