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

Author(s): Steffen Hoernig and Tommaso Valletti

Publication Date: February 2010

Keyword(s): Exclusivity, Mixing goods, Nonlinear tariffs and Two-part tariffs

Programme Area(s): Industrial Organization

Abstract: 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.

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Bibliographic Reference

Hoernig, S and Valletti, T. 2010. 'When two-part tariffs are not enough: Mixing with nonlinear pricing'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=7720