Competition for exclusive customers: comparing equilibrium and welfare under one-part and two-part pricing

James D. Reitzes and Glenn A. Woroch

Canadian Journal of Economics, 2008, vol. 41, issue 3, pages 1046-1086

Abstract: This paper compares one-part and two-part pricing in a discrete-continuous choice model, providing more extensive welfare results than prior literature. Under two-part pricing, firms may set fixed fees with or without `unit-price commitment,' where the lack of unit-price commitment is consistent with `after-market monopolization.' We find that two-part pricing with unit-price commitment is firms' dominant unilateral and joint pricing policy. Two-part pricing without unit-price commitment is the least desirable policy from a welfare standpoint. Under appropriate conditions, one-part pricing produces the highest consumer and social welfare, but the lowest profits.

JEL-codes: D43 D61 K21 L13 L41 M31 (search for similar items in EconPapers)
Date: 2008

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