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Pricing Strategies with Costly Customer Arbitrage

Hugh Sibly

Review of Industrial Organization, 2017, vol. 50, issue 3, No 5, 345-366

Abstract: Abstract A monopolist’s ability to conduct non-linear pricing is limited because customers can, at a cost, unbundle bundled output. Three pricing strategies are available to a firm: (1) a separating strategy; (2) a pooling strategy; and (3) an exclusion strategy. Each is optimal for some set of unbundling cost and distribution of customer types. The optimal pricing strategies are contrasted with the well-studied benchmark cases, in which unbundling costs are either zero or arbitrarily high. It is shown that it is not always possible to extrapolate the conclusions from the benchmark cases with respect to pricing, profitability, consumer surplus or efficiency.

Keywords: Non-linear pricing; Pricing strategies; Unbundling (search for similar items in EconPapers)
JEL-codes: D42 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11151-016-9533-0

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