Optimal Non-Linear Pricing Scheme When Consumers Are Habit Forming

Eleftheria Triviza

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This article analyses how consumers' habit formation affects firms' pricing policies. We consider both sophisticated consumers, who realize that their current consumption will affect future consumption, and naive consumers, who do not. The optimal contract for sophisticated consumers is a two-part tariff. The main result is that under naive habit formation, the optimal pricing pattern is a three-part tariff; namely a fixed fee, with some units priced below cost --- and after their end --- pricing above marginal cost. This holds both under symmetric and asymmetric information.

Keywords: three-part tariff; nonlinear pricing; naivete; habit formation (search for similar items in EconPapers)
JEL-codes: D11 D42 D82 L11 (search for similar items in EconPapers)
Pages: 53
Date: 2019-06
New Economics Papers: this item is included in nep-com and nep-reg
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Working Paper: Optimal Non-Linear Pricing Scheme When Consumers Are Habit Forming (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2019_098v1

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