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

Author

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  • 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.

Suggested Citation

  • James D. Reitzes & Glenn A. Woroch, 2008. "Competition for exclusive customers: comparing equilibrium and welfare under one-part and two-part pricing," Canadian Journal of Economics, Canadian Economics Association, vol. 41(3), pages 1046-1086, August.
    • Handle: RePEc:cje:issued:v:41:y:2008:i:3:p:1046-1086
    DOI: 10.1111/j.1540-5982.2008.00496.x
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    Cited by:

    1. Laure Durand-Viel & Bertrand Villeneuve, 2016. "Strategic Capacity Investment under Hold-up Threats: The Role of Contract Length and Width," Manchester School, University of Manchester, vol. 84(3), pages 313-339, June.

    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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; Personnel Economics - - Marketing and Advertising - - - Marketing

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