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Two‐Part Pricing with Costly Arbitrage

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  • Brian McManus

Abstract

This paper considers the optimal two‐part pricing strategy of a monopolist whose customers collude when they purchase the firm's product. In contrast to the sentiment in the existing price discrimination literature, I find that a monopolist's profit can actually increase when consumers share its good. When transaction costs for collusion are zero the firm can extract the full consumer surplus through two‐part prices. When transaction costs are positive or there are a substantial number of consumers without access to resale, the firm may be hurt by arbitrage.

Suggested Citation

  • Brian McManus, 2001. "Two‐Part Pricing with Costly Arbitrage," Southern Economic Journal, John Wiley & Sons, vol. 68(2), pages 369-386, October.
    • Handle: RePEc:wly:soecon:v:68:y:2001:i:2:p:369-386
    DOI: 10.1002/j.2325-8012.2001.tb00424.x
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