Bundling and Menus of Two-Part Tariffs

Authors: Kolay, Sreya¹; Shaffer, Greg²

Source: Journal of Industrial Economics, Volume 51, Number 3, September 2003 , pp. 383-403(21)

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Abstract:

Inducing self-selection among different segments of consumers is an important issue in pricing. Some firms induce self-selection by offering a menu of two-part tariffs (e.g., different rate plans) and letting consumers select the tariff and quantity they prefer. Other firms induce self-selection by offering a menu of price-quantity bundles (e.g., different package sizes) and letting consumers select only from among these bundles. We show that bundling is more profitable absent cost considerations. Social welfare may be higher or lower with bundling.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/1467-6451.00206

Affiliations: 1: University of Rochester, NY U.S.A. 2: University of Rochester, U.S.A.

Publication date: 2003-09-01