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Nonlinear pricing, market coverage, and competition

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Author Info

  • Yang, Huanxing

    ()
    (Department of Economics, Ohio State University)

  • Ye, Lixin

    ()
    (Department of Economics, Ohio State University)

Abstract

This paper considers a nonlinear pricing framework with both horizontally and vertically differentiated products. By endogenizing the set of consumers served in the market, we are able to study how increased competition affects nonlinear pricing, in particular the market coverage and quality distortions. We characterize the symmetric equilibrium menu of price-quality offers under different market structures. When the market structure moves from monopoly to duopoly, we show that more types of consumers are served and quality distortions decrease. As the market structure becomes more competitive, the effect of increased competition exhibits some non-monotonic features: when the initial competition is not too weak, a further increase in the number of firms leads to more types of consumers being covered and a reduction in quality distortions; when the initial competition is weak, an increase in the number of firms leads to fewer types of consumers being covered, though the effect on quality distortions is not uniform.

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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 3 (2008)
Issue (Month): 1 (March)
Pages:

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Handle: RePEc:the:publsh:336

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Web page: http://econtheory.org

Related research

Keywords: Nonlinear pricing; product differentiation; market coverage; quality distortions;

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Cited by:
  1. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2011. "Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities," Tinbergen Institute Discussion Papers 11-118/3, Tinbergen Institute.
  2. Miravete, Eugenio J, 2009. "Multivariate Sarmanov Count Data Models," CEPR Discussion Papers 7463, C.E.P.R. Discussion Papers.
  3. Marvel, Howard P. & Yang, Huanxing, 2008. "Group purchasing, nonlinear tariffs, and oligopoly," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1090-1105, September.
  4. Bonatti, Alessandro, 2011. "Brand-specific tastes for quality," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 562-575, September.
  5. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2011. "Second-degree Price Discrimination and Inter-group Effects in Airline Routes between European Cities," Tinbergen Institute Discussion Papers 11-118/3, Tinbergen Institute.
  6. Monteiro, Paulo K. & Page Jr., Frank H., 2009. "Endogenous mechanisms and Nash equilibrium in competitive contracting games," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 664-678, September.
  7. Ron Borzekowski & Raphael Thomadsen & Charles Taragin, 2005. "Competition and price discrimination in the market for mailing lists," Finance and Economics Discussion Series 2005-56, Board of Governors of the Federal Reserve System (U.S.).

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