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|
|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.