Price Discrimination by a Many-Product Firm
AbstractDetermining the optimal selling strategy for a multiproduct firm facing consumers with unobservable tastes is a difficult task. This paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products is large. Moreover, such tariffs take a simple form: (1) when taste parameters are independently distributed across products, the almost optimal tariff is a single cost-based, two-part tariff that can extract virtually all consumer surplus; (2) when tastes are correlated across products, perhaps because of income differences across consumers, the almost optimal tariff can be implemented as a menu of two-part tariffs, each of which has prices proportional to marginal costs. Copyright 1999 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 66 (1999)
Issue (Month): 1 (January)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
Other versions of this item:
- Armstrong, M., 1996. "Price discrimination by a many-product firm," Discussion Paper Series In Economics And Econometrics 9628, Economics Division, School of Social Sciences, University of Southampton.
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