How to Price Discriminate when Tariff Size Matters?
Post date: Sep 13, 2016 3:54:30 AM
Adib Bagh and Hemant K. Bhargava
Price discrimination produces higher revenues but also creates costs of designing and managing product menus. This paper compares alternative ways to price discriminate. It show that three-part tariffs are very efficient at price discrimination (revenue gains from price discrimination relative to the complexity of the price offerings). Even a single three-part tariff, or a small menu of three-part tariffs, can capture nearly all possible gains from price discrimination, while imposing relatively low costs of design and administration.