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Two-part tariff competition in duopoly

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  • Xiangkang Yin

    ()
    (Department of Economics and Finance, La Trobe University)

Abstract

Built on the location model, this paper studies the rivalry of two firms in an industry through two-part tariffs. It is found that kinky profit functions are responsible for the coincidence of imperfectly competitive equilibrium and cartelization outcome. A duopoly likely results in higher entry fees and industry profits and lower net consumers surplus than a monopoly because each duopolist has a smaller market size than the monopolist. But social welfare in the monopoly is lower than in the duopoly. In comparison with uniform pricing, two-part tariffs tend to have lower prices, more profits and welfare but the magnitude of net consumers surplus is ambiguous.

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File URL: http://www.latrobe.edu.au/__data/assets/pdf_file/0007/130867/2000.11.pdf
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Bibliographic Info

Paper provided by School of Economics, La Trobe University in its series Working Papers with number 2000.11.

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Length: 33 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:ltr:wpaper:2000.11

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Keywords: Monopoly; Oligopoly; Two-Part Tariff; Cartelization; COMPETITION ; ECONOMIC MODELS EDIRC Provider-Institution: RePEc:edi:smlatau;

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References

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  1. Rochet, Jean-Charles & Stole, Lars A, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 277-311, January.
  2. Anderson, Simon P & de Palma, Andre & Nesterov, Yurii, 1995. "Oligopolistic Competition and the Optimal Provision of Products," Econometrica, Econometric Society, vol. 63(6), pages 1281-1301, November.
  3. Ziss, Steffen, 1995. "Vertical Separation and Horizontal Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 63-75, March.
  4. Schmalensee, Richard., 1980. "Monopolistic two-part pricing arrangements," Working papers 1105-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Xiangkang Yin, 2000. "Two-part tariff competition in duopoly," Working Papers 2000.11, School of Economics, La Trobe University.
  6. Armstrong, Mark, 1999. "Price Discrimination by a Many-Product Firm," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 151-68, January.
  7. Xiangkang Yin, 1999. "A Model of Shareholder Discounts," Working Papers 1999.04, School of Economics, La Trobe University.
  8. Anderson, Simon P & de Palma, André, 1996. "From Local to Global Competition," CEPR Discussion Papers 1328, C.E.P.R. Discussion Papers.
  9. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  10. Ng, Yew-Kwang & Weisser, Mendel, 1974. "Optimal Pricing with a Budget Constraint-The Case of the Two-part Tariff," Review of Economic Studies, Wiley Blackwell, vol. 41(3), pages 337-45, July.
  11. Phlips,Louis, 1983. "The Economics of Price Discrimination," Cambridge Books, Cambridge University Press, number 9780521283946, December.
  12. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
  13. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
  14. Anderson, Simon P & Engers, Maxim, 1994. "Spatial Competition with Price-Taking Firms," Economica, London School of Economics and Political Science, vol. 61(242), pages 125-36, May.
  15. Clay, Karen, 1994. "A coasean general equilibrium model of regulation," Journal of Public Economics, Elsevier, vol. 53(3), pages 459-475, March.
  16. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  17. repec:fth:latrob:00.11 is not listed on IDEAS
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Citations

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Cited by:
  1. Calzada, Joan & Valletti, Tommaso, 2005. "Network Competition and Entry Deterrence," CEPR Discussion Papers 5381, C.E.P.R. Discussion Papers.
  2. Mark Burkey, 2011. "Spatial pricing models with lumpy transportation costs: the case for travel cost subsidization," Letters in Spatial and Resource Sciences, Springer, vol. 4(3), pages 197-206, October.
  3. Xiangkang Yin, 2000. "Two-part tariff competition in duopoly," Working Papers 2000.11, School of Economics, La Trobe University.
  4. John Vickers & Mark Armstrong, 2006. "Competitive Nonlinear Pricing and Bundling," Economics Series Working Papers 281, University of Oxford, Department of Economics.
  5. Robert Somogyi, 2013. "Bertrand-Edgeworth competition with substantial product differentiation," IEHAS Discussion Papers 1332, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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