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. I 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: 66
Date: 2020-06
New Economics Papers: this item is included in nep-cta
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Working Paper: Optimal Non-Linear Pricing Scheme When Consumers Are Habit Forming (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2020_098v2

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