EconPapers    
Economics at your fingertips  
 

A Theory of Partitioned Pricing

Zhiqi Chen ()

No 22-02, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: Partitioned pricing is a common pricing practice that divides the price of a product into a base price and one or more mandatory surcharges. From the perspective of standard economic theory, this practice is puzzling because rational buyers care about the full price they pay for a product rather than whether and how the price is partitioned into various components. This paper develops a theory of partitioned pricing using a duopoly model where the owner of each firm determines the level of surcharge but delegates the setting of base price to a manager. It shows that in equilibrium both firms choose partitioned pricing over conventional all-inclusive pricing. Moreover, partitioned pricing leads to higher full prices and larger profits than all-inclusive pricing. Most surprisingly, collusion on surcharge without any coordination on base price is as profitable as collusion on all-inclusive price. Classification-L11, L22, L41

Keywords: partitioned pricing; surcharges; duopoly; strategic delegation; collusion (search for similar items in EconPapers)
Pages: 27 pages
Date: 2022-02-03
New Economics Papers: this item is included in nep-com, nep-gth and nep-reg
References: Add references at CitEc
Citations: Track citations by RSS feed

Published: Carleton Economics Working Papers

Downloads: (external link)
https://carleton.ca/economics/wp-content/uploads/cewp22-02.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:22-02

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Carleton Economic Papers from Carleton University, Department of Economics C870 Loeb Building, 1125 Colonel By Drive, Ottawa Ontario, K1S 5B6 Canada.
Bibliographic data for series maintained by Sabrina Robineau ( this e-mail address is bad, please contact ).

 
Page updated 2023-01-31
Handle: RePEc:car:carecp:22-02