Two-part tariff: Difference between revisions

Revision as of 18:45, 13 December 2017

Revision as of 18:46, 13 December 2017

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{{More footnotes|date=February 2010}}

A '''two-part tariff''' (TPT) is a pricing technique in which the price of a [[product (business)|product]] or [[Service (economics)|service]] is composed of two parts - a lump-sum fee as well as a per-unit charge.<ref>Palgrave Dictionary of Economics: http://www.dictionaryofeconomics.com/article?id=pde2011_T000188</ref>, <ref>Robert S. Pindyck and Daniel L. Rubinfeld: ''Microeconomics'', 8th edition, Pearson, 2013, p. 414.</ref> In general, such a pricing technique only occurs in partially or fully [[monopoly|monopolistic]] [[market (economics)|market]]s. It is designed to enable the firm to capture more [[consumer surplus]] than it otherwise would in a non-discriminating pricing environment. Two-part tariffs may also exist in [[Competition (economics)|competitive markets]] when consumers are uncertain about their ultimate demand. Health club consumers, for example, may be uncertain about their level of future commitment to an exercise regimen.

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>