Nonlinear Pricing and Oligopoly
Journal of Economics & Management Strategy, Winter 1995, 4(4)
Posted: 19 Feb 2014
Date Written: December 1, 1995
We consider the general problem of price discrimination with nonlinear pricing in an oligopoly setting where firms are spatially differentiated. We characterize the nature of optimal pricing schedules, which in turn depends importantly upon the type of private information the customer possesses – either horizontal uncertainty regarding brand preference or vertical uncertainty regarding quality preference. We show that as competition increases, the resulting quality distortions decrease, as well as price and quality dispersions. Additionally, we indicate conditions under which price discrimination may raise social welfare by increasing consumer surplus through encouraging greater entry.
Keywords: Contract theory, Incentives
JEL Classification: C70, D82
Suggested Citation: Suggested Citation