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Partitioned Pricing and Collusion on Surcharges

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  • Zhiqi Chen

Abstract

Partitioned pricing is a pricing practice that divides the price of a product into a base price and one or more mandatory surcharges. This paper develops a theory of partitioned pricing using a duopoly model where the owner of each firm determines the surcharge, but delegates the setting of the base price to a manager. In equilibrium, both firms choose partitioned pricing over the conventional all-inclusive pricing. Moreover, partitioned pricing leads to higher full prices and larger profits than all-inclusive pricing. Most surprisingly, collusion on surcharges without any coordination on base prices is as profitable as collusion on all-inclusive prices.

Suggested Citation

  • Zhiqi Chen, 2023. "Partitioned Pricing and Collusion on Surcharges," The Economic Journal, Royal Economic Society, vol. 133(655), pages 2614-2639.
    • Handle: RePEc:oup:econjl:v:133:y:2023:i:655:p:2614-2639.
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    File URL: http://hdl.handle.net/10.1093/ej/uead044
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