Two-Part Tariff Competition in Duopoly

School of Business Discussion Papers, Series A 00.11, La Trobe University

33 Pages Posted: 7 Dec 2000

See all articles by Xiangkang Yin

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Abstract

This paper investigates the market equilibrium and welfare effects of two-part tariff competition. When consumers are uniformly distributed on a Hotelling line, equilibrium prices are equal to marginal costs if and only if the demand of the marginal consumer is equal to the average demand. Entry fees are socially optimal in a symmetric equilibrium if all consumers participate in the market. In comparison with uniform pricing, two-part tariffs tend to have lower prices, higher profits and social welfare. In the logit model, marginal cost pricing holds but entry fees are higher than the social optimum. Two-part tariffs also lead to lower aggregate net consumer surplus but higher profits than uniform pricing.

Keywords: Oligopoly, Two-Part Tariff, Cartelization

JEL Classification: D21, D42, D43, L11, L12, L13

Suggested Citation

Yin, Xiangkang, Two-Part Tariff Competition in Duopoly. School of Business Discussion Papers, Series A 00.11, La Trobe University. Available at SSRN: https://ssrn.com/abstract=249075 or http://dx.doi.org/10.2139/ssrn.249075

Xiangkang Yin (Contact Author)

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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