Non-Linear Pricing and Optimal Shipping Policies

Abstract

A monopolist produces a good for sale to a buyer with uncertain valuation. The seller seeks to implement a profit-maximizing non-linear pricing scheme, which includes the time at which the good is shipped to the consumer. If the buyer discounts future payoffs and the seller does not, then delayed shipments act as an almost-perfect substitute for complete information and the monopolist can extract almost all of the surplus from trade. Shipping policies thus serve as a powerful tool of enhancing price discrimination. However, if the seller is as patient as, or even only slightly more patient than, the buyer, then she cannot benefit from delaying allocations.

Keywords: monopoly, non-linear pricing, intertemporal price discrimination, mechanism design, surplus extraction

JEL Classification: D42, D82, L12