Competition in Two-Part Tariffs Between Asymmetric Firms

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dc.description.abstract We study competitive two-part tariffs (2PTs) in a model of asymmetric duopoly firms offering differentiated products in terms of both horizontal (à la Hotelling) and vertical differentiation. We provide a necessary and sufficient condition for marginal cost pricing to be in equilibrium. The condition states that there is no correlation between each firm's efficient quantity and the difference between the efficient consumer surpluses offered by the two firms. This condition can easily be violated when the firms have asymmetric marginal costs or face asymmetric vertically differentiated demands. When the firms face symmetric demands but have asymmetric marginal costs, we show that in equilibrium the firm with the higher marginal cost sets its marginal price below its own marginal cost and compensates this loss with the fixed fee, while the efficient firm sets its marginal price above its own marginal cost but below its rival's price. When the firms have identical marginal costs but asymmetric demands, we show that in equilibrium the firm with the vertically inferior product sets its price below the marginal cost, while the superior firm sets its price above the marginal cost. In each case, the ineficient firm "cross-subsidies" between the tariffs (fixed fee and marginal price). We further provide conditions for uniqueness and comparative statics properties of the equilibrium. Finally, we extend our analysis to allow for general market share functions. en
dc.title Competition in Two-Part Tariffs Between Asymmetric Firms en
dc.contributor.author Tamayo, Jorge Andres
dc.contributor.author Tan, Guofu
dc.date.accessioned 2017-02-23T21:23:31Z
dc.date.available 2017-02-23T21:23:31Z
dc.date.issued 2017-02-23
dc.identifier.uri http://lacer.lacea.org/handle/123456789/61267
lacea.language.supported en
dc.description Working paper
dc.language.iso en
dc.subject Competition
dc.subject Two-Part Tariffs
dc.subject Marginal Cost Pricing
dc.subject Cross-Subsidies
dc.subject Product Differentiation
dc.type Working Paper

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