Nonlinear Pricing with Average-price Bias

Download or read book Nonlinear Pricing with Average-price Bias written by David Martimort and published by . This book was released on 2019 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Empirical evidence suggests that consumers facing complex nonlinear pricing often make choices based on average (not marginal) prices. Given such behavior, we characterize a monopolist's optimal nonlinear price schedule. In contrast to the textbook setting, nonlinear prices designed for "average-price bias" distort consumption downward for consumers at the top, may produce efficient consumption for consumers at the bottom, and typically feature quantity premia rather than quantity discounts. These properties arise because the bias replaces consumer information rents with curvature rents. Whether or not a monopolist prefers consumers with average-price bias depends upon underlying preferences and costs.