Two-part tariffs with partial unbundling

Abstract

The paper explores second degree price discrimination in a multidimensional good context. There are two types of consumers with demand described by a two-dimensional vector, a quantity dimension and a service attribute dimension (mode of usage, usage pattern). The adverse selection parameter determines the consumers’ willingness to pay for quantity increments with a certain set of attributes. The multi-dimensionality is exploited by forcing a restriction on the mode of usage towards consumers with low willingness to pay in order to make it less tempting for high types to mimic a low type. We show that the firm introduces distortions in the use of the service against a decrease in the quantity distortions in the low-type’s contract.