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Multiproduct Nonlinear Pricing with Multiple Taste Characteristics

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  • David S. Sibley
  • Padmanabhan Srinagesh

Abstract

We analyze optimal multiproduct nonlinear prices in the case where consumer tastes are characterized by more than one taste parameter. We present conditions under which the optimal nonlinear price schedule can be computed by finding optimal price schedules separately for each market. If so, they are unbundled; if not, they are bundled. Bundling is weakly superior to unbundling and is strictly superior when a condition that we term uniform ordering of demand curves is weakly violated. With uniform ordering of demand curves, multiproduct nonlinear prices have the same features as single-product ones. Without this condition it is easy to construct examples that contradict some well-known results from the standard literature in mechanism design.

Suggested Citation

  • David S. Sibley & Padmanabhan Srinagesh, 1997. "Multiproduct Nonlinear Pricing with Multiple Taste Characteristics," RAND Journal of Economics, The RAND Corporation, vol. 28(4), pages 684-707, Winter.
    • Handle: RePEc:rje:randje:v:28:y:1997:i:winter:p:684-707
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    Cited by:

    1. Sibly, Hugh, 2008. "Vertical Product Differentiation with Linear Pricing," Working Papers 7335, University of Tasmania, Tasmanian School of Business and Economics, revised 01 Jul 2008.
    2. Eugenio J. Miravete, 2001. "Screening Through Bundling," Penn CARESS Working Papers 3b8e0b3847b08b90e8570987c, Penn Economics Department.
    3. Atanu Lahiri & Rajiv M. Dewan & Marshall Freimer, 2013. "Pricing of Wireless Services: Service Pricing vs. Traffic Pricing," Information Systems Research, INFORMS, vol. 24(2), pages 418-435, June.
    4. Bing Jing & Roy Radner, 2004. "Nonconvex Production Technology and Price Discrimination," Econometric Society 2004 North American Summer Meetings 513, Econometric Society.
    5. Hugh Sibly, 2009. "The Determinants Of The Quantity‐Quality Balance In Monopoly," Australian Economic Papers, Wiley Blackwell, vol. 48(1), pages 65-79, March.
    6. Shin-yi Wu & Lorin M. Hitt & Pei-yu Chen & G. Anandalingam, 2008. "Customized Bundle Pricing for Information Goods: A Nonlinear Mixed-Integer Programming Approach," Management Science, INFORMS, vol. 54(3), pages 608-622, March.
    7. Hugh Sibly, 2017. "Product Quality With Heterogeneous Consumers and Linear Pricing," Australian Economic Papers, Wiley Blackwell, vol. 56(4), pages 328-351, December.
    8. Greenlee, Patrick & Reitman, David & Sibley, David S., 2008. "An antitrust analysis of bundled loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1132-1152, September.
    9. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 95-119, march.
    10. Zheng, Shiyuan & Negenborn, Rudy R., 2014. "Centralization or decentralization: A comparative analysis of port regulation modes," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 21-40.
    11. Sibly, Hugh, 2012. "A decomposition of monopolistic quality distortion," Research in Economics, Elsevier, vol. 66(1), pages 97-105.
    12. Lorin M. Hitt & Pei-yu Chen, 2005. "Bundling with Customer Self-Selection: A Simple Approach to Bundling Low-Marginal-Cost Goods," Management Science, INFORMS, vol. 51(10), pages 1481-1493, October.
    13. Yossi Spiegel & Simon Wilkie, 2000. "Optimal Multiproduct Nonlinear Pricing with Correlated Consumer Types," Discussion Papers 1299, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    14. Robert Scott & Jannett Highfill, 2001. "Mixed bundling with profit and sales objectives," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(2), pages 243-252, May.
    15. van Vuuren, Daniel, 2002. "Optimal pricing in railway passenger transport: theory and practice in The Netherlands," Transport Policy, Elsevier, vol. 9(2), pages 95-106, April.
    16. Jensen, Sissel, 2008. "Two-part tariffs with quality degradation," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 473-489, March.
    17. Ivan Arribas & Amparo Urbano, 2004. "Mixed Bundling Strategies And Multiproduct Price Competition," Working Papers. Serie AD 2004-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    18. Miravete, Eugenio J., 2011. "Convolution and composition of totally positive random variables in economics," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 479-490.
    19. Brighi, Luigi & D'Amato, Marcello, 2002. "Two-dimensional screening: a case of monopoly regulation," Research in Economics, Elsevier, vol. 56(3), pages 251-264, September.

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