Two-Part Tariff Pricing in a Dynamic Environment

Abstract

A two-part tariff is a non-linear pricing technique in which the price of a product or service is composed of two parts: an entrance fee and a charge per unit of consumption. Compared to linear pricing, this methodology leads to higher profits by allowing a firm more freedom in extracting the consumer surplus. It is widely used in telecommunication services. This chapter documents recent developments on non-linear pricing in a dynamic and competitive environment. The developments can also be viewed as extensions of the linear dynamic pricing literature by allowing a two-part tariff scheme.