Two-part tariff: Difference between revisions

Revision as of 09:38, 12 March 2013

Revision as of 11:06, 25 March 2013

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==A two-part tariff when consumer demand is homogeneous==

[[Image:TwoPartTariffHomogDemandNAX.svg|right|thumb|300px|A demonstration of a two -part tariff when demand is homogeneous; the diagram applies for each consumer]]

When consumers have homogeneous demand, any one consumer is representative of the market (the market being n identical consumers). For purposes of demonstration, consider just one consumer who interacts with one firm which experiences no fixed costs and constant costs per unit - hence the horizontal [[marginal cost]] (MC) line.

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==A two-part tariff when consumer demand is different==

[[Image:TwoPartTariffDiffDemandNAX.svg|left|thumb|300px|A demonstration of a two -part tariff when demand is different]]

We now consider the case where there are two consumers, X and Y. Consumer Y's demand is exactly twice consumer X's demand, and each of these consumers is represented by a separate demand curve, and their combined demand (Dmarket). The firm is the same as in the previous example. We assume that the firm ''cannot separately identify each consumer'' - it cannot therefore price discriminate against each of them individually.