Price Discrimination by a Many-Product Firm

Mark Armstrong

The Review of Economic Studies, 1999, vol. 66, issue 1, 151-168

Abstract: Determining the optimal selling strategy for a multiproduct firm facing consumers with unobservable tastes is a difficult task. This paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products is large. Moreover, such tariffs take a simple form: (i) when taste parameters are independently distributed across products, the almost optimal tariff is a single cost-based two-part tariff which can extract virtually all consumer surplus; (ii) when tastes are correlated across products, perhaps because of income differences across consumers, the almost optimal tariff can be implemented as a menu of two-part tariffs each of which has prices proportional to marginal costs.

Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:66:y:1999:i:1:p:151-168.

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