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Two-part tariff competition in duopoly

  • Yin, Xiangkang

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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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 22 (2004)
Issue (Month): 6 (June)
Pages: 799-820

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Handle: RePEc:eee:indorg:v:22:y:2004:i:6:p:799-820
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Xiangkang Yin, 1999. "A Model of Shareholder Discounts," Working Papers 1999.04, School of Economics, La Trobe University.
  2. 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.
  3. Xiangkang Yin, 2000. "Two-part tariff competition in duopoly," Working Papers 2000.11, School of Economics, La Trobe University.
  4. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 277-311.
  5. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
  6. 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.
  7. Simon P. Anderson & Andre de Palma, 1998. "From Local to Global Competition," Virginia Economics Online Papers 344, University of Virginia, Department of Economics.
  8. Armstrong, Mark, 1999. "Price Discrimination by a Many-Product Firm," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 151-68, January.
  9. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  10. Richard Schmalensee, 1981. "Monopolistic Two-Part Pricing Arrangements," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 445-466, Autumn.
  11. repec:cup:cbooks:9780521283946 is not listed on IDEAS
  12. Ziss, Steffen, 1995. "Vertical Separation and Horizontal Mergers," Journal of Industrial Economics, Wiley Blackwell, vol. 43(1), pages 63-75, March.
  13. 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.
  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. Anderson, S. P. & De Palma, A. & Nesterov, Y., . "Oligopolistic competition and the optimal provision of products," CORE Discussion Papers RP -1179, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Clay, Karen, 1994. "A coasean general equilibrium model of regulation," Journal of Public Economics, Elsevier, vol. 53(3), pages 459-475, March.
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