Evaluating Welfare with Nonlinear Prices

34 Pages Posted: 24 Jul 2006 Last revised: 28 Sep 2006

See all articles by Peter C. Reiss

Peter C. Reiss

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Matthew W. White

University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER)

Date Written: July 2006

Abstract

This paper examines how to evaluate consumer welfare when consumers face nonlinear prices. This problem arises in many settings, such as devising optimal pricing strategies for firms, assessing how price discrimination affects consumers, and evaluating the efficiency costs of many transfer programs in the public sector. We extend prior methods to accommodate a broad range of modern pricing practices, including menus of pricing plans. This analysis yields a simpler and more general technique for evaluating exact consumer surplus changes in settings where consumers face nonlinear prices. We illustrate our method using recent changes in mobile phone service plans.

Suggested Citation

Reiss, Peter C. and White, Matthew Wallace, Evaluating Welfare with Nonlinear Prices (July 2006). NBER Working Paper No. w12370. Available at SSRN: https://ssrn.com/abstract=918968

Peter C. Reiss (Contact Author)

Stanford Graduate School of Business ( email )

Stanford, CA 94305-5015
United States
650-725 2759 (Phone)
650-725-7979 (Fax)

HOME PAGE: http://www.stanford.edu/~preiss

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matthew Wallace White

University of Pennsylvania - Business & Public Policy Department ( email )

The Wharton School
3100 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104-6372
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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