Linear Tariffs with Quality Discrimination

Shmuel S. Oren, Stephen A. Smith and Robert Wilson ()

Bell Journal of Economics, 1982, vol. 13, issue 2, 455-471

Abstract: When a good or service is offered in a variety of qualities with corresponding marginal prices, a quality-based allocation of consumption units by buyers is induced. This enables a monopolist supplier to achieve partial discrimination among buyers with different consumption preferences. We consider the situation in which a monopoly supplier, with complete information about the distribution of customer preferences, selects a generalized two-part tariff consisting of a single fixed subscription charge and quality dependent marginal charges. We analyze consumer behavior and optimal pricing strategies with and without positive demand externalities.

Date: 1982
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