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Linear Tariffs with Quality Discrimination

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  • Shmuel S. Oren
  • Stephen A. Smith
  • Robert B. Wilson

Abstract

When a good or service is offered in a variety of qualities with corresponding marginal prices, a quality-based allocation of consumption units by buyers is induced. This enables a monopolist supplier to achieve partial discrimination among buyers with different consumption preferences. We consider the situation in which a monopoly supplier, with complete information about the distribution of customer preferences, selects a generalized two-part tariff consisting of a single fixed subscription charge and quality dependent marginal charges. We analyze consumer behavior and optimal pricing strategies with and without positive demand externalities.

Suggested Citation

  • Shmuel S. Oren & Stephen A. Smith & Robert B. Wilson, 1982. "Linear Tariffs with Quality Discrimination," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 455-471, Autumn.
    • Handle: RePEc:rje:bellje:v:13:y:1982:i:autumn:p:455-471
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    Cited by:

    1. Konstantina Valogianni & Wolfgang Ketter & John Collins & Dmitry Zhdanov, 2020. "Sustainable Electric Vehicle Charging using Adaptive Pricing," Production and Operations Management, Production and Operations Management Society, vol. 29(6), pages 1550-1572, June.

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