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Two-part tariffs

Author

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  • Nikolaos Vettas

Abstract

A 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.

Suggested Citation

  • Nikolaos Vettas, 2011. "Two-part tariffs," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
  • Handle: RePEc:pal:dofeco:v:5:year:2011:doi:3860
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    File URL: http://www.dictionaryofeconomics.com/article?id=pde2011_T000188
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    Citations

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    Cited by:

    1. Bridgman, Benjamin, 2015. "Competition, work rules and productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 136-149.
    2. Griva, Krina & Vettas, Nikolaos, 2015. "On two-part tariff competition in a homogeneous product duopoly," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 30-41.

    More about this item

    Keywords

    Nonlinear pricing; Contracts; Price discrimination; Vertical trade;
    All these keywords.

    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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