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On an Open Question Regarding When Two-Block Pricing Weakly Dominates Two-Part Tariff

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  • Frederick Chen

Abstract

Leland and Meyer showed through an example that when the distribution of consumer types is nondegenerate, there exist two-block pricing plans that yield strictly higher producer surplus than the profit maximizing two-part tariff scheme. This led them to pose the following question: does weak dominance (in the sense of profit) rather than strict dominance of two-block pricing over two-part tariff hold only when the distribution of buyer-types is degenerate? This note shows that the answer to this question is, No: even when the distribution of consumer types is continuous, it is possible that the best two-block pricing scheme performs no better than the best two-part tariff. JEL Classification : D4

Suggested Citation

  • Frederick Chen, 2020. "On an Open Question Regarding When Two-Block Pricing Weakly Dominates Two-Part Tariff," The American Economist, Sage Publications, vol. 65(2), pages 204-213, October.
    • Handle: RePEc:sae:amerec:v:65:y:2020:i:2:p:204-213
    DOI: 10.1177/0569434519899097
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    More about this item

    Keywords

    block pricing; two-part tariff; two-block pricing;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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