Can price discrimination lead to product differentiation? A vertical differentiation model

Arbeitspapier

In this paper, I compare two-part tariff competition to linear pricing in a vertically differentiated duopoly. Consumers have identical tastes for quality but differ in their preferences for quantity. The main finding is that quality differentiation occurs in equilibrium if and only if two-part tariffs are permitted. Furthermore, two-part tariff competition encourages entry, which in turn increases welfare. Nevertheless, two-part tariff competition decreases consumers' surplus compared to linear pricing.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bonn Econ Discussion Papers ; No. 2/2007

Classification and Topics

• Classification: Wirtschaft ; Oligopoly and Other Imperfect Markets ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
• Subject: Duopoly ; Two-part tariff ; Vertical differentiation ; Preisdifferenzierung ; Produktdifferenzierung ; Produktqualität ; Duopol ; Wohlfahrtseffekt ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Herweg, Fabian
• Event: Veröffentlichung
• (who): University of Bonn, Bonn Graduate School of Economics (BGSE)
• (where): Bonn
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/22977
• Last update: 10.03.2025, 11:42 AM CET