Armstrong, Mark and Vickers, John (2008): Competitive nonlinear pricing and bundling.
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We examine competitive nonlinear pricing in a model in which consumers have heterogeneous and elastic demands and can buy from more than one supplier. It is an equilibrium for firms to offer a menu of efficient two-part tariffs. Compared with linear pricing, nonlinear pricing tends to raise profit but harm consumers when: (i) demand is elastic, (ii) there is substantial heterogeneity in consumer demand, (iii) consumers face substantial shopping costs when buying from more than one firm, and (iv) a consumer's brand preference for one product is correlated with her brand preference for another product. Nonlinear pricing is more likely to lead to welfare gains when (iii) and (iv) hold, but (ii) does not.
|Item Type:||MPRA Paper|
|Original Title:||Competitive nonlinear pricing and bundling|
|Keywords:||Price discrimination; bundling; nonlinear pricing; oligopoly|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
D - Microeconomics > D4 - Market Structure, Pricing, and Design
D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis
|Depositing User:||Mark Armstrong|
|Date Deposited:||07. Aug 2008 11:21|
|Last Modified:||24. Feb 2013 06:35|
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Competitive nonlinear pricing and bundling. (deposited 04. Oct 2006)
- Competitive nonlinear pricing and bundling. (deposited 07. Aug 2008 11:21) [Currently Displayed]