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Nonlinear Pricing and Oligopoly

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  • Lars A. Stole

Abstract

We consider the general problem of price discrimination with nonlinear pricing in an oligopoly setting where firms are spatially differentiated. We characterize the nature of optimal pricing schedules, which in turn depends importantly upon the type of private information the customer possesses–either horizontal uncertainty regarding brand preference or vertical uncertainty regarding quality preference. We show that as competition increases, the resulting quality distortions decrease, as well as price and quality dispersions. Additionally, we indicate conditions under which price discrimination may raise social welfare by increasing consumer surplus through encouraging greater entry.

Suggested Citation

  • Lars A. Stole, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-562, December.
    • Handle: RePEc:bla:jemstr:v:4:y:1995:i:4:p:529-562
    DOI: 10.1111/j.1430-9134.1995.00529.x
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