Delivered versus Mill Nonlinear Pricing in Free Entry Markets

Sílvia Ferreira Jorge and Cesaltina Pacheco Pires ()
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Sílvia Ferreira Jorge: Universidade Nova de Lisboa

Microeconomics from EconWPA

Abstract: This paper discusses a model where consumers simultaneously differ according to one unobservable (preference for quality) and one observable characteristic (location). In these circumstances nonlinear prices arise in equilibrium. The main question addressed in this work is whether firms should be allowed to practise different nonlinear prices at each location (delivered nonlinear pricing) or should be forced to set an unique nonlinear contract (mill nonlinear pricing). Assuming that firms can costless relocate, we show that the free entry long-run number of firms may be either smaller, equal, or higher under delivered nonlinear pricing. In addition, we show that delivered nonlinear pricing yields in the long-run higher welfare and, consequently, our results support the view that discriminatory nonlinear pricing should not be prohibited.

JEL-codes: D43 L13 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-09-28
Note: Type of Document - pdf; pages: 37
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Related works:
Working Paper: Delivered versus Mill Nonlinear Pricing in Free Entry Markets (2004)
Working Paper: Delivered versus Mill Nonlinear Pricing in Free Entry Markets (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:0409006

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