Abstract
In this paper, we introduce a nonlinear pricing model with transportation costs that do not vary with the quantity purchased. In contrast to the quantity discounts seen in a model with per-unit transportation charges, we find that the optimal nonlinear pricing schedule takes the form of either a two-part tariff or package pricing, which appears to be consistent with observed pricing structures. We compare efficiency measures between optimal nonlinear pricing and the single price monopoly result, finding that per trip transportation costs can lead to qualitatively different results for pricing structure and efficiency measures.
Highlights
Many spatial pricing rules have been examined for their effects on profits, firm location, and social welfare
We have described the profit-maximizing behavior of a monopolist when transportation costs are per trip, as in most consumer markets
In Proposition 2 we found that the optimal nonlinear price in such a market could be charged as a two-part tariff, i.e. a fixed access fee plus marginal cost pricing for all units purchased
Summary
Many spatial pricing rules have been examined for their effects on profits, firm location, and social welfare. 793) argues that: Most acts of consumption are preceded by a shopping trip, during which the relevant commodities are purchased and transferred to the consumer’s home; alternatively, services are consumed at the location of delivery Such shopping trips, especially if conducted by car, are characterized by great economies of scale in the quantity of any commodity or service picked up. In the case of spatial price discrimination, the firm can charge different prices to each consumer, based upon where the consumer “lives.” Another common spatial pricing method is to charge each customer the same price for each unit, where these prices include delivery This type of pricing is commonly called “uniform delivered pricing.”.
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