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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

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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Bibliographic 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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Cited by:
  1. Durand-Viel, Laure & Villeneuve, Bertrand, 2009. "Strategic Capacity Investment under Holdup Threats: The Role of Contract Length and Width," MPRA Paper 19015, University Library of Munich, Germany.

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