Competitive Non-linear Pricing and Bundling
We examine competitive non-linear pricing in a model in which consumers have heterogeneous and elastic demands and can buy from more than one supplier. It is an equilibrium for firms to offer a menu of efficient two-part tariffs, where the discount for one-stop shopping is such that the elasticity of "demand for two-stop shopping" equals two. Compared with linear pricing, non-linear pricing tends to raise profit but harm consumers when: (i) demand is elastic, (ii) there is heterogeneity in consumer demand, (iii) consumers incur shopping costs when buying from more than one firm, and (iv) a consumer's brand preference for one product is correlated with her brand preference for another product. Non-linear pricing is more likely to lead to welfare gains when (iii) and (iv) hold, but (ii) does not. Copyright , Wiley-Blackwell.
Year of publication: |
2010
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Authors: | Armstrong, Mark ; Vickers, John |
Published in: |
Review of Economic Studies. - Oxford University Press. - Vol. 77.2010, 1, p. 30-60
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Publisher: |
Oxford University Press |
Saved in:
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