Citation

Discussion Paper Details

Please find the details for DP6620 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Constrained Monopoly Pricing with Random Participation

Author(s): Gabriel Basaluzzo and Eugenio J Miravete

Publication Date: December 2007

Keyword(s): Nonlinear vs. Linear Pricing, Random Participation and Universal Service

Programme Area(s): Industrial Organization

Abstract: We present a flexible model of monopoly nonlinear pricing with endogenous participation decisions of heterogeneous consumers. We make use of the moments that define the few self-selecting tariff options that are commonly used to implement the optimal nonlinear tariff to estimate how demand and cost variables affect the pricing strategies offered by incumbent monopolists in several early U.S. local cellular telephone markets through the different elements of the theoretical model: marginal costs, average price sensitivity of demand, indexing parameters governing the distribution of the two-dimensional type components, support of the distribution of types, and costs associated to the commercialization of tariff options. The sources of identification are the position and shape of each tariff offered by monopolists, the actual number and features of the tariff options used to implement them, as well as a measure of market penetration in each cellular market during the first and last quarter of monopoly regime. We use our model and the structural estimates to provide a performance comparison (profit+welfare) of nonlinear tariffs relative to linear (uniform), optimal two-part, Coasian marginal cost-plus fixed fee, and flat tariffs. We furthermore evaluate the potential welfare gains of implementing universal service requirements.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6620

Bibliographic Reference

Basaluzzo, G and Miravete, E. 2007. 'Constrained Monopoly Pricing with Random Participation'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6620