Competing with Menus of Tariff Options

20 Pages Posted: 17 Jan 2007

See all articles by Eugenio J. Miravete

Eugenio J. Miravete

University of Texas at Austin; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

I study how firms actually compete in nonlinear tariffs by analyzing whether the incumbent and entrant's decisions to offer a given number of tariff options are interrelated. The goal is to shed some light on those dynamic and strategic aspects of tariff menus that are currently ignored by theoretical models of nonlinear pricing competition in order to highlight some basic features of the market that future theoretical work should address. This paper also introduces a generalized multivariate count data model that allows to account for the possibility of correlation of any sign among the pricing decisions of competing firms in a manner that is robust to the existence of over and underdispersion of counts. Pricing strategies appear to be strategic complements that respond positively to the existing heterogeneity of consumers' tastes. While this is a common source driving the number of tariff options offered, results also show that previous pricing decisions by the incumbent affect the entrant's current offering of tariff options, thus free riding on information about the market revealed by the likely better informed firm of the industry. The strategic complementarity result disappears when we only consider non-dominated tariffs.

Keywords: Nonlinear Pricing Competition; Tariff Menus; Strategic Complementarity; Bivariate Count, Data Regression

JEL Classification: D43, L96, M21

Suggested Citation

Miravete, Eugenio J., Competing with Menus of Tariff Options (January 2007). NET Institute Working Paper No. 07-02, Available at SSRN: https://ssrn.com/abstract=957628 or http://dx.doi.org/10.2139/ssrn.957628

Eugenio J. Miravete (Contact Author)

University of Texas at Austin ( email )

Department of Economics
1 University Station C3100
Austin, TX 78712-0301
United States
512-232-1718 (Phone)
512-471-3510 (Fax)

HOME PAGE: http://www.eco.utexas.edu/facstaff/Miravete

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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