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Structural Analysis of Nonlinear Pricing

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Listed:
  • Yao Luo
  • Isabelle Perrigne
  • Quang Vuong

Abstract

This paper proposes a methodology for analyzing nonlinear pricing data with an illustration on cellular phone. The model incorporates consumer exclusion. Assuming a known tariff, we establish identification of the model primitives using the first-order conditions of both the firm and the consumer up to a cost parameterization. Next, we propose a new one-step quantile-based nonparametric method to estimate the consumers’ inverse demand and their type distribution. We show that our nonparametric estimator is root-N-consistent. We then introduce unobserved product heterogeneity with an unknown tariff. We show how our identification and estimation results extend. Our analysis of cellular phone consumption data assesses the performance of alternative pricing strategies relative to nonlinear pricing.

Suggested Citation

  • Yao Luo & Isabelle Perrigne & Quang Vuong, 2014. "Structural Analysis of Nonlinear Pricing," Working Papers tecipa-518, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-518
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    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-518.pdf
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    References listed on IDEAS

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    1. Nicholas Economides & Katja Seim & V. Brian Viard, 2008. "Quantifying the benefits of entry into local phone service," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 699-730.
    2. Riley,John G., 2012. "Essential Microeconomics," Cambridge Books, Cambridge University Press, number 9780521827478, August.
    3. Xiao-Hua Zhou & Huazhen Lin & Eric Johnson, 2008. "Non-parametric heteroscedastic transformation regression models for skewed data with an application to health care costs," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 70(5), pages 1029-1047.
    4. Marmer, Vadim & Shneyerov, Artyom, 2012. "Quantile-based nonparametric inference for first-price auctions," Journal of Econometrics, Elsevier, vol. 167(2), pages 345-357.
    5. Shakeeb Khan & Youngki Shin & Elie Tamer, 2011. "Heteroscedastic Transformation Models With Covariate Dependent Censoring," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 29(1), pages 40-48, January.
    6. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, January.
    7. Matt Shum & G Crawford, 2003. "Monopoly Quality Degradation in Cable Television," Economics Working Paper Archive 502, The Johns Hopkins University,Department of Economics.
    8. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
    9. Lott, John R, Jr & Roberts, Russell D, 1991. "A Guide to the Pitfalls of Identifying Price Discrimination," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 14-23, January.
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    More about this item

    Keywords

    Nonlinear Pricing; Nonparametric Identification; Empirical Processes; Quantile; Transformation Model; Unobserved Heterogeneity; Telecommunication;

    JEL classification:

    • L8 - Industrial Organization - - Industry Studies: Services
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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