Three Principles of Competitive Nonlinear Pricing

Warwick Economics Research Paper No. 592

54 Pages Posted: 31 May 2002

See all articles by Frank H. Page

Frank H. Page

Systemic Risk Centre, LSE; Indiana University, Bloomington - Department of Economics

Paulo Klinger Monteiro

Getulio Vargas Foundation (FGV) - EPGE

Date Written: June 2002

Abstract

We make three contributions to the theory of contracting under asymmetric information. First, we establish a competitive analog to the revelation principle which we call the implementation principle. This principle provides a complete characterization of all incentive compatible, indirect contracting mechanisms in terms of contract catalogs (or menus), and allows us to conclude that in competitive contracting situations, firms in choosing their contracting strategies can restrict attention, without loss of generality, to contract catalogs. Second, we establish a competitive taxation principle. This principle, a refinement of the implementation principle, provides a complete characterization of all implementable nonlinear pricing schedules in terms of product-price catalogs and allows us to reduce any game played over nonlinear pricing schedules to a strategically equivalent game played over product-price catalogs. Third, applying the notion of payoff security (Reny (1999)) and the competitive taxation principle, we demonstrate the existence of a Nash equilibrium for the mixed extension of the nonlinear pricing game. Moreover, we identify a large class of competitive nonlinear pricing games whose mixed extensions satisfy payoff security.

Keywords: competitive nonlinear pricing, delegation principle, implementation principle, competitive taxation principle, Nash equilibria for discontinuous games

JEL Classification: D82, L51

Suggested Citation

Page, Frank H. and Monteiro, Paulo Klinger, Three Principles of Competitive Nonlinear Pricing (June 2002). Warwick Economics Research Paper No. 592, Available at SSRN: https://ssrn.com/abstract=311619 or http://dx.doi.org/10.2139/ssrn.311619

Frank H. Page (Contact Author)

Systemic Risk Centre, LSE ( email )

Houghton St
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.systemicrisk.ac.uk/

Indiana University, Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Paulo Klinger Monteiro

Getulio Vargas Foundation (FGV) - EPGE ( email )

sala 1103
Rio de Janeiro RJ, 22250-900
Brazil
+55 21 37995838 (Phone)
+55 21 25538821 (Fax)

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