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A note on two-part pricing under uncertainty

โœ Scribed by Roger D. Blair; Christina DePasquale

Publisher
John Wiley and Sons
Year
2010
Tongue
English
Weight
85 KB
Volume
31
Category
Article
ISSN
0143-6570

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โœฆ Synopsis

In his classic article, Walter Oi (Oi, Q. J. Econ. 2005; 85: 77-96) analyzed the optimal structure of a two-part tariff. He showed that identical consumer demands result in user fees equal to marginal cost and a lump-sum entry fee equal to the consumer surplus that marginal cost pricing generates. This result appears in managerial economics texts (Managerial Economics (6th edn). W. W. Norton: New York; 472-475; Managerial Economics and Business Strategy (5th edn). McGraw Hill/Irwin: New York; 410-412) and intermediate microeconomics texts (Intermediate Microeconomics (6th edn). W. W. Norton: New York; 451-453). In this note, we extend Oi's analysis to the case of uncertainty. We show that attitudes toward risk influence the optimal two-part tariff. The results from our model describe the two-part tariff that emerges from expected utility maximization.

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