Nonlinear Pricing and Oligopoly

Journal of Economics & Management Strategy, Winter 1995, 4(4)

Posted: 19 Feb 2014

See all articles by Lars Stole

Lars Stole

University of Chicago - Booth School of Business

Date Written: December 1, 1995

Abstract

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

Stole, Lars A., Nonlinear Pricing and Oligopoly (December 1, 1995). Journal of Economics & Management Strategy, Winter 1995, 4(4). Available at SSRN: https://ssrn.com/abstract=2397256

Lars A. Stole (Contact Author)

University of Chicago - Booth School of Business ( email )

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