DP7720 When two-part tariffs are not enough: Mixing with nonlinear pricing

Author(s): Steffen Hoernig, Tommaso Valletti
Publication Date: February 2010
Keyword(s): Exclusivity, Mixing goods, Nonlinear tariffs, Two-part tariffs
JEL(s): L13, L82
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7720

We consider competition in nonlinear tariffs when consumers mix two goods, and ask whether simple two-part tariffs or exclusivity can arise in equilibrium. Contrary to the existing literature, this happens only when consumer types are observable. If they are unobservable, then the equilibrium tariff has decreasing marginal prices even when goods are almost homogeneous, and a third of consumers always mixes goods. Two-part tariffs will never even arise as best responses to arbitrary tariffs.