IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/6279.html
   My bibliography  Save this paper

Competing with Menus of Tariff Options

Author

Listed:
  • Miravete, Eugenio

Abstract

I study how firms actually compete in nonlinear tariffs by analyzing whether the incumbent and entrant's decisions to offer a given number of tariff options are interrelated. The goal is to shed some light on those dynamic and strategic aspects of tariff menus that are currently ignored by theoretical models of nonlinear pricing competition in order to highlight some basic features of the market that future theoretical work should address. This paper also introduces a generalized multivariate count data model that allows me to account for the possibility of correlation of any sign among the pricing decisions of competing firms in a manner that is robust to the existence of over and underdispersion of counts. Pricing strategies appear to be strategic complements that respond positively to the existing heterogeneity of consumers' tastes. While this is a common source driving the number of tariff options offered, results also show that previous pricing decisions by the incumbent affect the entrant's current offering of tariff options, thus implying free riding by the entrant on information about the market revealed by the likely better informed firm of the industry. The strategic complementarity result disappears when I only consider non-dominated tariffs.

Suggested Citation

  • Miravete, Eugenio, 2007. "Competing with Menus of Tariff Options," CEPR Discussion Papers 6279, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6279
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP6279
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nicholas Economides & Katja Seim & V. Brian Viard, 2008. "Quantifying the benefits of entry into local phone service," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 699-730, September.
    2. Lars A. Stole, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-562, December.
    3. Gal-Or, Esther, 1988. "Oligopolistic nonlinear tariffs," International Journal of Industrial Organization, Elsevier, vol. 6(2), pages 199-221.
    4. Eugenio J. Miravete, 2004. "The Doubtful Profitability of Foggy Pricing," Working Papers 04-07, NET Institute.
    5. Meghan Busse & Marc Rysman, 2005. "Competition and Price Discrimination in Yellow Pages Advertising," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 378-390, Summer.
    6. Heinen, Andreas & Rengifo, Erick, 2007. "Multivariate autoregressive modeling of time series count data using copulas," Journal of Empirical Finance, Elsevier, vol. 14(4), pages 564-583, September.
    7. Eugenio J. Miravete, 2004. "The Doubtful Profitability of Foggy Pricing," Working Papers 04-07, NET Institute.
    8. A. Colin Cameron & Tong Li & Pravin K. Trivedi & David M. Zimmer, 2004. "Modelling the differences in counted outcomes using bivariate copula models with application to mismeasured counts," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 566-584, December.
    9. Leon Yang Chu & David E. M. Sappington, 2007. "Simple Cost-Sharing Contracts," American Economic Review, American Economic Association, vol. 97(1), pages 419-428, March.
    10. Vives, Xavier, 1990. "Nash equilibrium with strategic complementarities," Journal of Mathematical Economics, Elsevier, vol. 19(3), pages 305-321.
    11. Meghan R. Busse, 2000. "Multimarket Contact and Price Coordination in the Cellular Telephone Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 287-320, June.
    12. Eugenio J. Miravete & José C. Pernías, 2006. "Innovation Complementarity And Scale Of Production," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 1-29, March.
    13. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
    14. Spulber, Daniel F., 1989. "Product variety and competitive discounts," Journal of Economic Theory, Elsevier, vol. 48(2), pages 510-525, August.
    15. Röller, Lars-Hendrik & Miravete, Eugenio, 2003. "Competitive Non-Linear Pricing in Duopoly Equilibrium: The Early US Cellular Telephone Industry," CEPR Discussion Papers 4069, C.E.P.R. Discussion Papers.
    16. A. Colin Cameron & Tong Li & Pravin K. Trivedi & David M. Zimmer, 2004. "Modelling the differences in counted outcomes using bivariate copula models with application to mismeasured counts," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 566-584, December.
    17. Jean-Charles Rochet & Lars A. Stole, 2002. "Nonlinear Pricing with Random Participation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 277-311.
    18. Katja Seim & V. Brian Viard, 2003. "The Effect Of Entry And Market Structure On Cellular Pricing Tactics," Working Papers 03-13, NET Institute, revised Nov 2003.
    19. Pierre-Andre Chiappori & Bernard Salanie, 2000. "Testing for Asymmetric Information in Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 56-78, February.
    20. Anja Lambrecht & Katja Seim & Bernd Skiera, 2007. "Does Uncertainty Matter? Consumer Behavior Under Three-Part Tariffs," Marketing Science, INFORMS, vol. 26(5), pages 698-710, 09-10.
    21. William P. Rogerson, 2003. "Simple Menus of Contracts in Cost-Based Procurement and Regulation," American Economic Review, American Economic Association, vol. 93(3), pages 919-926, June.
    22. Denuit, Michel & Lambert, Philippe, 2005. "Constraints on concordance measures in bivariate discrete data," Journal of Multivariate Analysis, Elsevier, vol. 93(1), pages 40-57, March.
    23. Philip M. Parker & Lars-Hendrik Roller, 1997. "Collusive Conduct in Duopolies: Multimarket Contact and Cross-Ownership in the Mobile Telephone Industry," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 304-322, Summer.
    24. Matt Shum & G Crawford, 2003. "Monopoly Quality Degradation in Cable Television," Economics Working Paper Archive 502, The Johns Hopkins University,Department of Economics.
    25. Winkelmann, Rainer, 1995. "Duration Dependence and Dispersion in Count-Data Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 467-474, October.
    26. Gourieroux, Christian & Monfort, Alain & Trognon, Alain, 1984. "Pseudo Maximum Likelihood Methods: Applications to Poisson Models," Econometrica, Econometric Society, vol. 52(3), pages 701-720, May.
    27. Young-Hoon Park & Peter S. Fader, 2004. "Modeling Browsing Behavior at Multiple Websites," Marketing Science, INFORMS, vol. 23(3), pages 280-303, May.
    28. Eric Maskin & John Riley, 1984. "Monopoly with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 171-196, Summer.
    29. Oren, Shmuel S. & Smith, Stephen A. & Wilson, Robert B., 1983. "Competitive nonlinear tariffs," Journal of Economic Theory, Elsevier, vol. 29(1), pages 49-71, February.
    30. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    31. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-528, June.
    32. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zucchini, Leon & Kretschmer, Tobias, 2011. "Competitive Pressure: Competitive Dynamics as Reactions to Multiple Rivals," Discussion Papers in Business Administration 12308, University of Munich, Munich School of Management.
    2. repec:vuw:vuwscr:19071 is not listed on IDEAS
    3. Bonatti, Alessandro, 2011. "Brand-specific tastes for quality," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 562-575, September.
    4. Pau Olivella & Marcos Vera-Hernandez, 2010. "How complex are the contracts offered by health plans?," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 1(3), pages 305-323, July.
    5. Miravete, Eugenio, 2007. "The Limited Gains From Complex Tariffs," Working Paper Series 3971, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    6. Miravete, Eugenio J. & Pernías, José C., 2010. "Testing for complementarity when strategies are dichotomous," Economics Letters, Elsevier, vol. 106(1), pages 28-31, January.
    7. Tingting He & Dmitri Kuksov & Chakravarthi Narasimhan, 2017. "Free in-network pricing as an entry-deterrence strategy," Quantitative Marketing and Economics (QME), Springer, vol. 15(3), pages 279-303, September.
    8. Christos Genakos & Tobias Kretschmer & Ambre Nicolle, 2021. "Strategic confusopoly: evidence from the UK mobile market," CEP Discussion Papers dp1810, Centre for Economic Performance, LSE.
    9. Miravete, Eugenio, 2007. "The Limited Gains From Complex Tariffs," Working Paper Series 19071, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Katja Seim & V. Brian Viard, 2011. "The Effect of Market Structure on Cellular Technology Adoption and Pricing," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 221-251, May.
    2. Eugenio Miravete, 2014. "Testing for complementarities among countable strategies," Empirical Economics, Springer, vol. 46(4), pages 1521-1544, June.
    3. Eugenio J. Miravete, 2004. "The Doubtful Profitability of Foggy Pricing," Working Papers 04-07, NET Institute.
    4. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    5. Katja Seim & V. Brian Viard, 2003. "The Effect Of Entry And Market Structure On Cellular Pricing Tactics," Working Papers 03-13, NET Institute, revised Nov 2003.
    6. Yao Luo & Isabelle Perrigne & Quang Vuong, 2018. "Structural Analysis of Nonlinear Pricing," Journal of Political Economy, University of Chicago Press, vol. 126(6), pages 2523-2568.
    7. Bonatti, Alessandro, 2011. "Brand-specific tastes for quality," International Journal of Industrial Organization, Elsevier, vol. 29(5), pages 562-575, September.
    8. Eugenio J. Miravete, 2004. "The Doubtful Profitability of Foggy Pricing," Working Papers 04-07, NET Institute.
    9. Ron Borzekowski & Raphael Thomadsen & Charles Taragin, 2009. "Competition and price discrimination in the market for mailing lists," Quantitative Marketing and Economics (QME), Springer, vol. 7(2), pages 147-179, June.
    10. Khaled Diaw & Jérôme Pouyet, 2005. "Information, competition and (In) complete discrimination," Working Papers hal-00243025, HAL.
    11. Jian Shen & Huanxing Yang & Lixin Ye, 2016. "Competitive Nonlinear Pricing and Contract Variety," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 64-108, March.
    12. Liang Chen & Yao Luo, 2023. "Empirical Analysis of Network Effects in Nonlinear Pricing Data," Working Papers tecipa-758, University of Toronto, Department of Economics.
    13. Stephen Davies, Catherine Waddams Price, and Chris M. Wilson, 2014. "Nonlinear Pricing and Tariff Differentiation: Evidence from the British Electricity Market," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).
    14. Chen, Liang & Luo, Yao, 2023. "Empirical analysis of network effects in nonlinear pricing data," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    15. Ye, Lixin & Zhang, Chenglin, 2017. "Monopolistic nonlinear pricing with consumer entry," Theoretical Economics, Econometric Society, vol. 12(1), January.
    16. Koji Ishibashi, 2024. "Biased Beliefs of Consumers and Two-Part Tariff Competition," Keio-IES Discussion Paper Series 2024-009, Institute for Economics Studies, Keio University.
    17. Anindya Ghose & Ke‐Wei Huang, 2009. "Personalized Pricing and Quality Customization," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1095-1135, December.
    18. Philippe Gagnepain & Marc Ivaldi & David Martimort, 2013. "The Cost of Contract Renegotiation: Evidence from the Local Public Sector," American Economic Review, American Economic Association, vol. 103(6), pages 2352-2383, October.
    19. Gihwan Yi & Min Kim & Hoe Sang Chung, 2024. "The Revenue Impact of Differential Seat Pricing and Competition in the Movie Theater Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(3), pages 361-382, May.
    20. Inderst, Roman & Peitz, Martin, 2012. "Informing consumers about their own preferences," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 417-428.

    More about this item

    Keywords

    Bivariate count data regression; Nonlinear pricing competition; Strategic complementarity; Tariff menus;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:6279. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.