Nonlinear Pricing with Average-Price Bias

David Martimort and Lars Stole

American Economic Review: Insights, 2020, vol. 2, issue 3, 375-96

Abstract: Empirical evidence suggests that consumers facing complex nonlinear prices often make choices based on average (not marginal) prices. Given such behavior, we characterize a monopolist's optimal nonlinear price schedule. In contrast to the textbook setting, nonlinear prices designed for "average-price bias" distort consumption downward for consumers with the highest marginal utility and typically feature quantity premia rather than quantity discounts. These properties arise because the bias replaces consumer information rents with "curvature rents." Whether or not a monopolist prefers consumers with average-price bias depends upon underlying preferences and costs.

JEL-codes: D11 D21 D42 L12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Nonlinear Pricing with Average-Price Bias (2020)
Working Paper: Nonlinear Pricing with Average-Price Bias (2020)
Working Paper: Nonlinear Pricing with Average-Price Bias (2019)
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DOI: 10.1257/aeri.20190272

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