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Two-Tier Pricing of Shared Facilities in a Free-Entry Equilibrium

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  • Suzanne Scotchmer

Abstract

We explore how well the market will provide shared facilities which are subject to congestion. It is usually efficient to have multiple facilities because it is more efficient to spend resources on facilities than to endure crowding costs. We assume firms can charge a membership price and a visit price. We present a symmetric Nash equilibrium in these two prices. We show that if a number of firms is large, the membership price will be small. Thus, the membership price is a measure of market power. When entry occurs in response to positive profit (but such that entry is deterred by the prospect of negative profit in a symmetric Nash equilibrium), the endogenous number of firms is bounded below by one fewer than the efficient number. The fees paid by a client converge to an appropriately defined competitive price as the economy is replicated.

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  • Suzanne Scotchmer, 1985. "Two-Tier Pricing of Shared Facilities in a Free-Entry Equilibrium," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 456-472, Winter.
  • Handle: RePEc:rje:randje:v:16:y:1985:i:winter:p:456-472
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    Cited by:

    1. de Palma, Andre & Lindsey, Robin, 2002. "Private roads, competition, and incentives to adopt time-based congestion tolling," Journal of Urban Economics, Elsevier, vol. 52(2), pages 217-241, September.
    2. Ellickson, Bryan & Grodal, Birgit & Scotchmer, Suzanne & Zame, William R., 2001. "Clubs and the Market: Large Finite Economies," Journal of Economic Theory, Elsevier, vol. 101(1), pages 40-77, November.
    3. 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.
    4. James G. Mulligan, 2006. "Endogenously determined Quality and Price In a Two-Sector Competitive Service Market With an Application to Down-Hill Skiing," Working Papers 06-01, University of Delaware, Department of Economics.
    5. Fraser, Clive D., 2000. "When Is Efficiency Separable from Distribution in the Provision of Club Goods?," Journal of Economic Theory, Elsevier, vol. 90(2), pages 204-221, February.
    6. Khaïreddine Jebsi & Lionel Thomas, 2005. "Nonlinear pricing of a congestible network good," Economics Bulletin, AccessEcon, vol. 4(2), pages 1-7.
    7. Engel Eduardo M & Fischer Ronald & Galetovic Alexander, 2004. "Toll Competition Among Congested Roads," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-21, March.
    8. Jacques-François Thisse & Suzanne Scotchmer, 1993. "Les implications de l'espace pour la concurrence," Revue Économique, Programme National Persée, vol. 44(4), pages 653-670.
    9. Fraser, Clive D., 1996. "On the provision of excludable public goods," Journal of Public Economics, Elsevier, vol. 60(1), pages 111-130, April.
    10. Scotchmer, Suzanne, 1997. "On price-taking equilibria in club economies with nonanonymous crowding," Journal of Public Economics, Elsevier, vol. 65(1), pages 75-88, July.
    11. Glazer, Amihai & Niskanen, Esko & Scotchmer, Suzanne, 1997. "On the uses of club theory: Preface to the club theory symposium," Journal of Public Economics, Elsevier, vol. 65(1), pages 3-7, July.
    12. Wang, Judith Y.T. & Lindsey, Robin & Yang, Hai, 2011. "Nonlinear pricing on private roads with congestion and toll collection costs," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 9-40, January.
    13. Ramandeep S. Randhawa & Sunil Kumar, 2008. "Usage Restriction and Subscription Services: Operational Benefits with Rational Users," Manufacturing & Service Operations Management, INFORMS, vol. 10(3), pages 429-447, December.
    14. Kanemoto, Yoshitsugu, 2000. "Price and quantity competition among heterogeneous suppliers with two-part pricing: applications to clubs, local public goods, networks, and growth controls," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 587-608, December.
    15. Gilles, Robert P. & Scotchmer, Suzanne, 1997. "Decentralization in Replicated Club Economies with Multiple Private Goods," Journal of Economic Theory, Elsevier, vol. 72(2), pages 363-387, February.
    16. Bai, Chong-En & Lu, Yi & Tao, Zhigang, 2009. "Excludable public goods: Pricing and social welfare maximization," Economics Letters, Elsevier, vol. 103(2), pages 72-74, May.
    17. Emilson Caputo Delfino Silva & Richard Corne, 2014. "Prestige Clubs," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 131, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    18. Skander Essegaier & Sunil Gupta & Z. John Zhang, 2002. "Pricing Access Services," Marketing Science, INFORMS, vol. 21(2), pages 139-159, June.

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