Three principles of competitive nonlinear pricing

Frank H. Page Junior and Paulo Monteiro

No 442, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: We make three contributions to the theory of contracting under asymmetric information. First, we establish a competitive analog to the revelation principIe which we call the implementation principIe. This principIe provides a complete characterization of all incentive compatible, indirect contracting mechanisms in terms of contract catalogs (or menus), and allows us to conclude that in competi tive contracting situations, firms in choosing their contracting strategies can restrict attention, without loss of generality, to contract catalogs. Second, we establish a competi tive taxation principIe. This principIe, a refinement of the implementation principIe, provides a complete characterization of all implementable nonlinear pricing schedules in terms of product-price catalogs and allows us to reduce any game played over nonlinear pricing schedules to a strategically equivalent game played over product-price catalogs. Third, using the competitive taxation principIe and a recent result due to Reny (1999) on the existence of Nash equilibria in discontinuous games, we demonstrate the existence of a N ash equilibrium for the mixed extension of the nonlinear pricing game.

Date: 2002-03-01
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Related works:
Journal Article: Three principles of competitive nonlinear pricing (2003)
Working Paper: Three Principles of Competitive Nonlinear Pricing (2002)
Working Paper: Three principles of competitive nonlinear pricing (2002)
Journal Article: Three Principles of Competitive Nonlinear Pricing (2001)
Working Paper: Three Principles of Competitive Nonlinear Pricing (2001)
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