Optimal Multiproduct Nonlinear Pricing with Correlated Consumer Types

Abstract

In this paper we examine the design of nonlinear prices by a multiproduct monopolist who faces customers with multidimensional but correlated types. We show that the monopoly can exploit the correlations between consumers' types to design pricing mechanisms that fully extract the surplus from each consumer. Our main insight is that regardless of the dimensionality of the consumers types and the number of goods produced by the monopoly, the surplus that each consumer gets after buying is a scalar. Hence, it is possible to design a two step mechanism where in the first step the monopoly induces the consumers to make efficient purchasing decisions (given their private information), and in the second step he extracts the surplus from each consumer via a (random) fixed fee.

Keywords: nonlinear prices, multidimensional types, correlated types, incremental cost, Clarke-Groves mechanisms

JEL Classification: D42, D82