The Limited Gains From Complex Tariffs

Eugenio Miravete

No 19071, Working Paper Series from Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation

Abstract: This paper uses an equilibrium model of multipart nonlinear pricing to determine the magnitude of foregone profits due to the implementation of simple tariff options. I then use the available information from a cross-section of independent cellular telephone markets to study how these foregone profits vary with markets' observable characteristics. Results show that commercialization costs effectively limit the number of tariff options offered to consumers. The evidence presented in this paper suggests that firms should only offer a few tariff options if their commercialization and product development costs are non-negligible. More importantly this evidence favors the use of two-part tariffs and other simple pricing strategies in theoretical modeling in order to overcome the analytical difficulties of the existing general models of nonlinear pricing and thus responds to the many open questions in the area of nonlinear pricing.

Date: 2007
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwcsr:19071

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