AbstractA two-part tariff is a pricing scheme according to which the buyer pays to the seller a fixed fee and a constant charge for each unit purchased. When it is used, the average price paid decreases as more units are purchased. Further, it is the marginal charge and not the fixed fee that determines how many units will be purchased. Therefore, a two-part tariff can be used as a vehicle for price discrimination and also for manipulating the incentives given to the buyers, allowing also the sellers to capture part of the residual surplus through an appropriately chosen fixed fee.
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This chapter was published in: Steven N. Durlauf & Lawrence E. Blume (ed.) , , pages , 2011, 3rd quarter update.
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