IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Constrained Pricing of Monopolies with Endogenous Participation

Listed author(s):
  • Eugenio Miravete
  • Gabriel Basaluzzo


    (Economics University of Pennsylvania)

We present a flexible model of monopoly nonlinear pricing with endogenous participation decisions of heterogeneous consumers. We use computing intensive methods to fit the solution of this model to many nonlinear tariffs offered by incumbent monopolists in several early local U.S. cellular telephone markets. For each market, numerical solutions of two–point boundary problems identify the marginal cost, average price sensitivity of demand, marginal consumer type, and indexing parameters governing the distribution of the two-dimensional type components. The sources of identification are the position, shape, and allowance of free minutes that defines each tariff offered by monopolists as well as a measure of market penetration in each cellular market during the first and last quarter of monopoly regime. We use the distribution of these structural parameters across markets and time to evaluate the magnitude of the inefficient provision of goods due to asymmetric information, the importance of bunching of different consumer types, and the empirical relevance of random participation constraints. We use these structural parameters to provide a first performance comparison —profits and welfare— of nonlinear tariffs relative to linear, optimal two-part, Coasian marginal cost-plus fixed fee, and flat tariffs. We furthermore evaluate the potential welfare gains of alternative policies such as implementing a universal service requirement or allowing a second identical cellular telephone carrier. Finally, we also conduct a descriptive analysis of the sample variation of all structurally identified variables conditional on the observable characteristics of markets and cellular carriers

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: main text
Download Restriction: no

Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2005 with number 114.

in new window

Date of creation: 11 Nov 2005
Handle: RePEc:sce:scecf5:114
Contact details of provider: Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:sce:scecf5:114. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.