Two-part tariff: Difference between revisions

Revision as of 04:19, 2 December 2015

Revision as of 22:16, 23 May 2016

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Depending on the homogeneity of demand, the lump-sum fee charged varies, but the rational firm will set the per unit charge '''above or equal to''' the [[marginal cost]] of production, and '''below or equal to''' the price the firm would charge in a [[Monopoly#Monopolistic pricing|perfect monopoly]]. Under [[Competition (economics)|competition]] the per-unit price is set below marginal cost.<ref>Hayes, B. (1987), p. 42.</ref>

An important element to remember concerning two-part tariffs is that it is still price discrimination, of which an important feature is that the product or service offered by the firm must be identical to all consumers, hence, price charged may vary, but ''not due to different costs borne by the firm'', as this would inferimply a [[Differentiation (marketing)|differentiated]] product. Thus, while credit cards which charge an annual fee plus a per-transaction fee is a good example of a two-part tariff, a fixed fee charged by a car rental company in addition to a per-kilometre fuel fee is not so good, because the fixed fee may reflect fixed costs such as registration and insurance which the firm must recoup in this manner. This can make the identification of two-part tariffs difficult.

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