Price Discrimination - Additional Forms of Price...

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Additional Forms of Price Discrimination: The Two-Part Tariff, Commodity Bundling and Transfer Pricing
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The Two-Part Tariff The two-part tariff is a method of pricing in which the seller charges a lump-sum fee (tariff 1) for the right to buy any number of units as well as a unit price (tariff 2). Examples of this arrangement are your telephone bill as well as the fees for sky- boxes+tickets at football stadiums, and fees at country, golf and health clubs (member + use fees).
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The two-part Tariff when all demanders are the same If consumers are the same then the two-part tariff is the same as perfect price discrimination – is a way of operationalizing it. Assume a linear demand curve, and a linear, horizontal MC curve To maximize profits, the firm charges the MC as the use fee and the resulting consumer surplus as the entry fee. The next figure shows this case. The lump-sum fee is $2450; the unit price is $10.
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Two-Part Tariff, Low Demand Customer
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Assume now the MC is upward sloping. The rule is the same: charge the MC for the use fee, the reminder CS is the entry fee. This case is shown in the next figure. The user fee equals areas X*+Y * and the
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This note was uploaded on 04/07/2008 for the course ECON 2010 taught by Professor Devkota during the Spring '08 term at Rensselaer Polytechnic Institute.

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Price Discrimination - Additional Forms of Price...

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