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Screening Consumers through Alternative Pricing Mechanisms

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  • Eugenio J. Miravete

Abstract

This paper addresses the optimal design of optional nonlinear tariffs. Two particular solutions commonly used in telecommunications and other industries are fully characterized. These optimal outlay schedules illustrate how the tariff design is altered when there exists a time lag between tariff choice and consumption. In this model consumers' uncertainty is resolved in the interim, between the tariff choice and the usage decision, through changes in their types. The paper studies whether the monopolist may profit from screening consumers according to different information sets, and it shows that expected profits are higher under an ex-post tariff if the variance of the ex-ante type distribution is large enough. The paper also shows that no results regarding social efficiency may be obtained in general. Welfare comparison of optional tariffs will be very sensitive to type distributions, how types enter demand specifications, and the relative variance of the type components.

Suggested Citation

  • Eugenio J. Miravete, 1995. "Screening Consumers through Alternative Pricing Mechanisms," Discussion Papers 1145, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1145
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    1. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-327, May.
    2. Calem, Paul S. & Spulber, Daniel F., 1984. "Multiproduct two part tariffs," International Journal of Industrial Organization, Elsevier, vol. 2(2), pages 105-115, June.
    3. Kridel, Donald J. & Lehman, Dale E. & Weisman, Dennis L., 1993. "Option value, telecommunications demand, and policy," Information Economics and Policy, Elsevier, vol. 5(2), pages 125-144, July.
    4. M. Barry Goldman & Hayne E. Leland & David S. Sibley, 1984. "Optimal Nonuniform Prices," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 305-319.
    5. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    6. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
    7. Clay, Karen B & Sibley, David S & Srinagesh, Padmanabhan, 1992. "Ex Post vs. Ex Ante Pricing: Optional Calling Plans and Tapered Tariffs," Journal of Regulatory Economics, Springer, vol. 4(2), pages 115-138, June.
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    Cited by:

    1. Michael D. Grubb & Matthew Osborne, 2015. "Cellular Service Demand: Biased Beliefs, Learning, and Bill Shock," American Economic Review, American Economic Association, vol. 105(1), pages 234-271, January.
    2. Eugenio J. Miravete, 2001. "Screening Through Bundling," Penn CARESS Working Papers 3b8e0b3847b08b90e8570987c, Penn Economics Department.
    3. Michael Kremer & Christopher Snyder, 2015. "Preventives Versus Treatments," NBER Working Papers 21012, National Bureau of Economic Research, Inc.
    4. Eugenio J. Miravete, 2002. "Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 943-971.
    5. Gérard P. Cachon & Pnina Feldman, 2011. "Pricing Services Subject to Congestion: Charge Per-Use Fees or Sell Subscriptions?," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 244-260, June.
    6. Mark Armstrong, 2016. "Nonlinear Pricing," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 583-614, October.
    7. Ringbom, Staffan & Shy, Oz, 2008. "Refunds and collusion in service industries," Journal of Economics and Business, Elsevier, vol. 60(6), pages 502-516.
    8. Pascal Courty & Li Hao, 2000. "Sequential Screening," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 697-717.
    9. Danau, Daniel & Vinellay, Annalisa, 2010. "Optimal contracting with private information on cost expectation and variability," SIRE Discussion Papers 2010-59, Scottish Institute for Research in Economics (SIRE).
    10. Daniel Danau & Annalisa Vinella, 2012. "Optimal contract with private information on cost expectation and variability," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201228, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    11. Eugenio J. Miravete, "undated". "Quantity Discounts for Taste-Varying Consumers," CARESS Working Papres 99-11, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
    12. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
    13. Farhad Daruwala & Frank T. Denton & Dean C. Mountain, 2017. "One Size May Not Fit All: Welfare Benefits And Cost Reductions With Differentiated Household Electricity Rates In A General Equilibrium Model," Department of Economics Working Papers 2017-03, McMaster University.
    14. Miravete, Eugenio J, 2001. "Quantity Discounts for Time-Varying Consumers," CEPR Discussion Papers 2699, C.E.P.R. Discussion Papers.
    15. Michael D. Grubb, 2009. "Selling to Overconfident Consumers," American Economic Review, American Economic Association, vol. 99(5), pages 1770-1807, December.
    16. Inderst, Roman & Peitz, Martin, 2012. "Informing consumers about their own preferences," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 417-428.
    17. Bang, Se Hoon & Kim, Jaesoo, 2013. "Price discrimination via information provision," Information Economics and Policy, Elsevier, vol. 25(4), pages 215-224.
    18. Michael Kremer & Christopher M. Snyder, 2013. "When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity," NBER Working Papers 18862, National Bureau of Economic Research, Inc.
    19. Erzo F.P. Luttmer & Richard J. Zeckhauser, 2008. "Schedule Selection by Agents: from Price Plans to Tax Tables," NBER Working Papers 13808, National Bureau of Economic Research, Inc.
    20. Michael Kremer & Christopher Snyder, 2004. "Why is There No AIDS Vaccine?," CID Working Papers 111, Center for International Development at Harvard University.
    21. Inderst, Roman & Peitz, Martin, 2008. "Selling Service Plans to Differentially Informed Customers," ZEW Discussion Papers 08-125, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    22. Oz Shy & Staffan Ringbom, 2005. "Refunds and Collusion," "Marco Fanno" Working Papers 0001, Dipartimento di Scienze Economiche "Marco Fanno".
    23. Staffan Ringbom & Oz Shy, 2004. "Advance booking, cancellations, and partial refunds," Economics Bulletin, AccessEcon, vol. 13(1), pages 1-7.
    24. repec:ebl:ecbull:v:13:y:2004:i:1:p:1-7 is not listed on IDEAS

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