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Two-Part Tariff Competition With Switching Costs and Sales Agents

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  • Solange Berstein

Abstract

This paper study the effects of two-part tariff pricing in a competitive environment with differentiated products and switching costs. This is the case of long distance telephone service, where there is a fixed monthly fee and a charge per call. This is also the case for some financial institutions like mutual funds or pension funds. In many of these industries there are also switching costs. In this environment, markets have reacted by hiring sales agents to switch consumers from one firm to another. Without considering sales agents, social welfare is the same under a two-part tariff regime as under single pricing, but the distribution of surplus is different. When sales agents are introduced to the model, they are able to reduce switching costs, and welfare might increase; but they generate over-switching with respect to the social optimum.

Suggested Citation

  • Solange Berstein, 2002. "Two-Part Tariff Competition With Switching Costs and Sales Agents," Working Papers Central Bank of Chile 162, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:162
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    References listed on IDEAS

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    1. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    2. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    3. Drew Fudenberg & Jean Tirole, 2000. "Customer Poaching and Brand Switching," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 634-657, Winter.
    4. Andrea Tokman Ramos, 2002. "Is Private Education Better? Evidence from Chile," Working Papers Central Bank of Chile 147, Central Bank of Chile.
    5. Spulber, Daniel F, 1981. "Spatial Nonlinear Pricing," American Economic Review, American Economic Association, vol. 71(5), pages 923-933, December.
    6. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
    7. Ireland, Norman J, 1991. "Welfare and Non-linear Pricing in a Cournot Oligopoly," Economic Journal, Royal Economic Society, vol. 101(407), pages 949-957, July.
    8. Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
    9. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
    10. Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-1471, November.
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    Cited by:

    1. Solange Berstein & Alejandro Micco, 2002. "Turnover and Regulation: The Chilean Pension Fund Industry," Working Papers Central Bank of Chile 180, Central Bank of Chile.
    2. Rubén Castro, 2005. "Efectos de Largo Plazo de la Comisión Fija en el Sistema Chileno de AFP," Working Papers 9, Superintendencia de Pensiones, revised Aug 2005.

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