Price discrimination by a many-product firm
Determining the optimal selling strategy for a multiproduct firm facing consumers with unobservable tastes is a difficult task. This paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products is large. Moreover, such tariffs take a simple form: (1) when taste parameters are independently distributed across products, the almost optimal tariff is a single cost-based, two-part tariff that can extract virtually all consumer surplus; (2) when tastes are correlated across products, perhaps because of income differences across consumers, the almost optimal tariff can be implemented as a menu of two-part tariffs, each of which has prices proportional to marginal costs. Copyright 1999 by The Review of Economic Studies Limited.
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