Template-Type: ReDIF-Paper 1.0
Title: Optimal Non-Linear Pricing Scheme When Consumers Are Habit Forming
Author-Name:  Eleftheria Triviza
Author-Email: etriviza@mail.uni-mannheim.de
Classification-JEL:  L11, D11, D42, D82
Keywords: three-part tariff, nonlinear pricing, naivete, habit formation

Abstract: This article analyses how consumers' habit formation affects firms' pricing policies. We consider both sophisticated consumers, who realize that their current consumption will affect future consumption, and naive consumers, who do not. The optimal contract for sophisticated consumers is a two-part tariff. The main result is that under naive habit formation, the optimal pricing pattern is a three-part tariff; namely a fixed fee, with some units priced below cost --- and after their end --- pricing above marginal cost. This holds both under symmetric and asymmetric information.

Note: 
Length: 53
Creation-Date: 2019-06
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp098
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2019_098v1