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A note on two‐part pricing under uncertainty
Author(s) -
Blair Roger D.,
DePasquale Christina
Publication year - 2010
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1510
Subject(s) - economics , mathematical economics , econometrics
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. Copyright © 2010 John Wiley & Sons, Ltd.