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Delivered versus Mill Nonlinear Pricing in Free Entry Markets


  • Sílvia Jorge

    (Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro)

  • Cesaltina Pires

    (Departamento de Gestão de Empresas, Universidade de Évora)


This paper discusses a model where consumers simultaneously differ according to one unobservable (preference for quality) and one observable characteristic (location). In these circumstances nonlinear prices arise in equilibrium. The main question addressed in this work is whether firms should be allowed to practise different nonlinear prices at each location (delivered nonlinear pricing) or should be forced to set an unique nonlinear contract (mill nonlinear pricing). Assuming that firms can costless relocate, we show that the free entry long-run number of firms may be either smaller, equal, or higher under delivered nonlinear pricing. In addition, we show that delivered nonlinear pricing yields in the long-run higher welfare and, consequently, our results support the view that discriminatory nonlinear pricing should not be prohibited.

Suggested Citation

  • Sílvia Jorge & Cesaltina Pires, 2004. "Delivered versus Mill Nonlinear Pricing in Free Entry Markets," Working Papers de Economia (Economics Working Papers) 22, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
  • Handle: RePEc:ave:wpaper:222004

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    References listed on IDEAS

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    Cited by:

    1. Jorge, Sí­lvia Ferreira & Pires, Cesaltina Pacheco, 2008. "Delivered versus mill nonlinear pricing with endogenous market structure," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 829-845, May.

    More about this item


    Delivered nonlinear pricing; Mill nonlinear pricing; Asymmetric information; Pricing regulation;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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