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On two-part tariff competition in a homogeneous product duopoly

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  • Vettas, Nikolaos
  • Griva, Krina

Abstract

We explore the nature of two-part tariff competition between duopolists providing a homogeneous service when consumers differ with respect to their usage rates. Competition in only one price component (the fixed fee or the rate) may allow both firms to enjoy positive profits if the other price component has been set at levels different enough for each firm. Endogenous market segmentation emerges, with the heavier users choosing the lower rate firm and the lighter users choosing the lower fee firm. We therefore characterize how fixing one price component indirectly introduces an element of product differentiation to an otherwise homogeneous product market. We also examine the crucial role that non-negativity constraints play for the nature of market equilibrium.

Suggested Citation

  • Vettas, Nikolaos & Griva, Krina, 2012. "On two-part tariff competition in a homogeneous product duopoly," CEPR Discussion Papers 9106, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9106
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    1. Griva, Krina & Vettas, Nikolaos, 2015. "On two-part tariff competition in a homogeneous product duopoly," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 30-41.
    2. Florian Gössl & Alexander Rasch, 2020. "Collusion under different pricing schemes," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(4), pages 910-931, October.
    3. Jiajia Cong & Wen Zhou, 2021. "Optimal contract under double moral hazard and limited liability," Journal of Economics, Springer, vol. 134(1), pages 49-71, September.

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    More about this item

    Keywords

    Market segmentation; Non-linear pricing; Two-part tariffs;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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