On two-part tariff competition in a homogeneous product duopoly
AbstractWe explore the nature of two-part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage rates. Competition in only one price component (the fixed fee or the rate) may allow both firms to enjoy positive profits if the other price component has been set at levels different enough for each firm. Endogenous market segmentation emerges, with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm. We therefore characterize how fixing one price component indirectly introduces an element of product differentiation to an otherwise homogeneous product market. We also examine the crucial role that non-negativity constraints play for the nature of market equilibrium.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9106.
Date of creation: Aug 2012
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Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-03 (All new papers)
- NEP-BEC-2012-09-03 (Business Economics)
- NEP-COM-2012-09-03 (Industrial Competition)
- NEP-IND-2012-09-03 (Industrial Organization)
- NEP-INT-2012-09-03 (International Trade)
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