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Optimal Nonlinear Pricing, Bundling Commodities and Contingent Services

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  • Marion PODESTA
  • Jean-Christophe POUDOU

Abstract

In this paper, we propose to analyze optimal nonlinear pricing when a firm offers in a bundle a commodity and a contingent service. The paper studies a mechanism design where all private information can be captured in a single scalar variable in a monopoly context. We show that to propose the package for commodity and service is less costly for the consumer, the firm has lower consumers rent than the situation where it sells their good and contingent service under an independent pricing strategy. In fact, the possibility to use price discrimination via the supply of package is dominated by the fact that it is costly for the consumer to sign two contracts. Bundling energy and a contingent service is a profitable strategy for a energetician monopoly practising optimal nonlinear tariff. We show that the rates of the energy and the contingent service depend to the optional character of the contingent service and depend to the degree of complementarity between commodities and services.

Suggested Citation

  • Marion PODESTA & Jean-Christophe POUDOU, 2008. "Optimal Nonlinear Pricing, Bundling Commodities and Contingent Services," Cahiers du CREDEN (CREDEN Working Papers) 08.04.76, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
  • Handle: RePEc:mop:credwp:08.04.76
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    File URL: http://www.creden.univ-montp1.fr/downloads/cahiers/CC-08-04-76.pdf
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    References listed on IDEAS

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    1. Marion PODESTA & Jean-Christophe POUDOU, 2008. "Optimal Nonlinear Pricing, Bundling Commodities and Contingent Services," Cahiers du CREDEN (CREDEN Working Papers) 08.04.76, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
    2. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    3. Schmalensee, Richard, 1982. "Commodity Bundling by Single-Product Monopolies," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 67-71, April.
    4. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
    5. Olsen, Trond E. & Osmundsen, Petter, 2001. "Strategic tax competition; implications of national ownership," Journal of Public Economics, Elsevier, vol. 81(2), pages 253-277, August.
    6. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring.
    7. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    8. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 371-383.
    9. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
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    Cited by:

    1. Marion PODESTA & Jean-Christophe POUDOU, 2008. "Optimal Nonlinear Pricing, Bundling Commodities and Contingent Services," Cahiers du CREDEN (CREDEN Working Papers) 08.04.76, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.

    More about this item

    Keywords

    Bundling; Nonlinear pricing; Energy market;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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