Optimal Nonuniform Pricing with Generalized Consumer Choice

Michael A Einhorn

Journal of Industrial Economics, 1994, vol. 42, issue 1, 105-13

Abstract: A frequent assumption in nonuniform pricing models is that local maximizing conditions are met exactly once for each purchasing consumer; no consumer can be indifferent between two nonadjacent usage levels. Each consumer then responds to a change in marginal price only by incrementally reducing her usage. More realistically, maximizing conditions are sometimes twice met for some interior users who can be indifferent between nonadjacent usage levels and may, therefore, jump discretely if marginal prices change at either level. The author derives a monopolist's generalized price schedule under these circumstances and shows that marginal price may fall below marginal cost. Copyright 1994 by Blackwell Publishing Ltd.

Date: 1994
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