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. I 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: 66
Creation-Date: 2020-06
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp098
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2020_098v2