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

• Tommaso Valletti Steffen Hoernig
28 Feb 2010

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.