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Package Sizes, Tariffs, Quantity Discount and Premium

Author

Listed:
  • Babu Nahata

    (Department of Economics, University of Louisville)

  • Serguei Kokovin

    (Department of Economics, Novosibirsk State University)

  • Evgeny Zhelobodko

    (Department of Economics, Novosibirsk State University)

Abstract

We analyze nonlinear pricing problem under monopoly using two hidden types of agents with linear demands and fully characterize all possible optimal solutions for both ordered and non-ordered demands. We show that both optimal packages can either contain Pareto-efficient quantities or one package can be undersized or oversized. All these effects are non- degenerate and are expected to hold for nonlinear demands. Surprisingly, the total output under nonlinear price discrimination with self- selection is neither unambigously realted to efficiency nor to the degree of monopoly power (demand elasticity). We also show that under limited range of parameters quantity premia can occur only when demands are ordered.

Suggested Citation

  • Babu Nahata & Serguei Kokovin & Evgeny Zhelobodko, 2003. "Package Sizes, Tariffs, Quantity Discount and Premium," General Economics and Teaching 0307002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpgt:0307002
    Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on HP/PostScript/; pages: 35
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    References listed on IDEAS

    as
    1. Gerstner, Eitan & Hess, James D, 1987. "Why Do Hot Dogs Come in Packs of 10 and Buns in 8s or 12s? A Demand-Side Investigation," The Journal of Business, University of Chicago Press, vol. 60(4), pages 491-517, October.
    2. Michael L. Katz, 1983. "Non-uniform Pricing, Output and Welfare under Monopoly," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(1), pages 37-56.
    3. Michael L. Katz, 1984. "Nonuniform Pricing with Unobservable Numbers of Purchases," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 461-470.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Babu Nahata & Serguei Kokovin & Evgeny Zhelobodko, 2003. "Self-Selection Under Non-Ordered Valuations: Type-Splitting, Envy-Cycles, Rationing And Efficiency," General Economics and Teaching 0307001, University Library of Munich, Germany.
    2. Babu Nahata & Serguei Kokovin & Evgeny Zhelobodko, 2003. "Informational Structure and Effciency in Monopoly," General Economics and Teaching 0307004, University Library of Munich, Germany.
    3. Nahata, Babu & Ringbom, Staffan, 2007. "Price discrimination using linear and nonlinear pricing simultaneously," Economics Letters, Elsevier, vol. 95(2), pages 267-271, May.
    4. Kimmo Berg & Harri Ehtamo, 2012. "Continuous learning methods in two-buyer pricing problem," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 75(3), pages 287-304, June.
    5. Chao, Yong & Nahata, Babu, 2015. "The degree of distortions under second-degree price discrimination," Economics Letters, Elsevier, vol. 137(C), pages 208-213.
    6. Kokovin, S. & Nahata, B. & Zhelobodko, E., 2011. "All Solution Graphs in Multidimensional Screening," Journal of the New Economic Association, New Economic Association, issue 11, pages 10-38.
    7. Kokovin Sergey & Zhelobodko Evgeniy, 2008. "Diagnosing Efficiency of Distortion in Discrete Screening," EERC Working Paper Series 08/02e, EERC Research Network, Russia and CIS.

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    More about this item

    Keywords

    Principal-agent; self-selection; nonlinear pricing; package pricing; Pareto efficiency;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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