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Pricing Strategies with Costly Customer Arbitrage

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  • Hugh Sibly

    (University of Tasmania)

Abstract

A monopolist’s ability to conduct non-linear pricing is limited because customers can, at a cost, unbundle bundled output. Three pricing strategies are available to a firm: (1) a separating strategy; (2) a pooling strategy; and (3) an exclusion strategy. Each is optimal for some set of unbundling cost and distribution of customer types. The optimal pricing strategies are contrasted with the well-studied benchmark cases, in which unbundling costs are either zero or arbitrarily high. It is shown that it is not always possible to extrapolate the conclusions from the benchmark cases with respect to pricing, profitability, consumer surplus or efficiency.

Suggested Citation

  • Hugh Sibly, 2017. "Pricing Strategies with Costly Customer Arbitrage," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(3), pages 345-366, May.
    • Handle: RePEc:kap:revind:v:50:y:2017:i:3:d:10.1007_s11151-016-9533-0
    DOI: 10.1007/s11151-016-9533-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Non-linear pricing; Pricing strategies; Unbundling;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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