Multiproduct Nonlinear Pricing with Multiple Taste Characteristics

David S. Sibley and Padmanabhan Srinagesh

RAND Journal of Economics, 1997, vol. 28, issue 4, 684-707

Abstract: We analyze optimal multiproduct nonlinear prices in the case where consumer tastes are characterized by more than one taste parameter. We present conditions under which the optimal nonlinear price schedule can be computed by finding optimal price schedules separately for each market. If so, they are unbundled; if not, they are bundled. Bundling is weakly superior to unbundling and is strictly superior when a condition that we term uniform ordering of demand curves is weakly violated. With uniform ordering of demand curves, multiproduct nonlinear prices have the same features as single-product ones. Without this condition it is easy to construct examples that contradict some well-known results from the standard literature in mechanism design.

Date: 1997
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