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Transaction Cost, Two-Part Tariffs, and Collusion

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  • Young, Allan Richard

Abstract

When two goods exhibit demand complementarity, the sellers would generally charge lower prices under collusion than under rivalry--a cartel internalizes cross effects that independent firms ignore. For the particular case of "two-part" tariffs consisting of entrance fees and per-unit prices, this paper shows that entrance fees are indeed lower under collusion than under rivalry, but that per-unit prices are unaffected. The demand complementarity arises from transaction costs borne by consumers who enter the market. The policy implication is that collusion can be socially preferable to competition in the presence of such transaction costs. Copyright 1991 by Oxford University Press.

Suggested Citation

  • Young, Allan Richard, 1991. "Transaction Cost, Two-Part Tariffs, and Collusion," Economic Inquiry, Western Economic Association International, vol. 29(3), pages 581-590, July.
  • Handle: RePEc:oup:ecinqu:v:29:y:1991:i:3:p:581-90
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    Cited by:

    1. Harrison, Mark & Kline, J. Jude, 2001. "Quantity competition with access fees," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 345-373, March.

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