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F11MKT300_Pricing4

# F11MKT300_Pricing4 - Pricing Part 4 Nonlinear Pricing q...

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Pricing Part 4: Nonlinear Pricing q Two-Part Tariffs q Single price plan for one customer segment q Single price plan for two customer segments q Menu of two price plans for two customer segments

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Examples of Nonlinear Pricing Contracts Linear Price Contract: same price for each unit Two-part Tariff Fixed Fee Three-Part Block Tariff Total Cost to Customer Quantity
A Two-Part Tariff requires a consumer to pay: r A Fixed Fee (F) that gives the consumer the right to purchase units of a product at a specified price r After paying the fixed fee, the consumer can purchase as many units of the product as desired at a specified per-unit price called the Variable Fee (f) r The consumer’s total expenditure is the Fixed Fee plus Structure of a Two-Part Tariff

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11 Assume: Two Customer Segments in the Market High Value (HV) Users E.g.: Business use Low Value (LV) users Eg.: Personal Use Example: Cell Phone Service
9 Demand of each customer by segment Airtime Charges (\$/hr) Monthly Usage (in hr) p q Monthly Demand forCellular service ( High Valuation Segment ) Monthly Demand forCellular service ( Low Valuation Segment) 10 12 10 12 Number of Customers in segment=N2 No. of Customers in Segment= N1 p= f = 10 – q p= f = 12 – q Assume that each customer within the segment has the same demand curve

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10 f 0 10 - f 10 q Airtime Charge ( p ) \$/hr Airtime Demand (hr) Serving the Low Valuation Segment Only Assume zero variable cost Option 1: Per Hour Fee only (linear pricing) F = 0; f = ?
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F11MKT300_Pricing4 - Pricing Part 4 Nonlinear Pricing q...

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