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Competition for exclusive customers: comparing equilibrium and welfare under one-part and two-part pricing

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Author Info
James D. Reitzes
Glenn A. Woroch

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Abstract

This paper compares one-part and two-part pricing in a discrete-continuous choice model, providing more extensive welfare results than prior literature. Under two-part pricing, firms may set fixed fees with or without `unit-price commitment,' where the lack of unit-price commitment is consistent with `after-market monopolization.' We find that two-part pricing with unit-price commitment is firms' dominant unilateral and joint pricing policy. Two-part pricing without unit-price commitment is the least desirable policy from a welfare standpoint. Under appropriate conditions, one-part pricing produces the highest consumer and social welfare, but the lowest profits.

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File URL: http://economics.ca/cgi/xms?jab=v41n3/CJEv41n3p1046.pdf
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Publisher Info
Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 41 (2008)
Issue (Month): 3 (August)
Pages: 1046-1086
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Handle: RePEc:cje:issued:v:41:y:2008:i:3:p:1046-1086

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Related research
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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing

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This page was last updated on 2009-12-21.

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