This paper examines a firm's incentive to sell a service that is of lower quality when the firm offers a menu of two-part tariffs. Each tariff is characterized by a fixed fee together with two screening instruments, these being a uniform per unit charge and a quality restriction. We find that allocation of quality is monotonic in type, while per unit charge might be non-monotonic. The results thus contradict one of the most established insights in nonlinear pricing, that the per unit charge should be monotonically decreasing over the type space. We show that this practice increases welfare due to increased consumption efficiency.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
file. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.