Collusion under different pricing schemes

Abstract

We analyze collusive outcomes under different pricing schemes in a differentiated product market in which customers have elastic demand. Starting with a situation in which firms can set two-part tariffs to price discriminate, we consider two policy interventions that ban price discrimination: Firms must set (a) linear prices or (b) fixed fees. We find that collusion at maximum prices becomes harder to sustain under linear prices. By contrast, the analysis shows that the fixed fees policy facilitates collusion at maximum prices. The results have important implications for competition policy.

Complex Pricing and Consumer-Side Attention

“…Compared to the base case with screening contracts, we find that consumers and firms are typically affected in opposite directions. When firms set fixed prices only, in models with only informed consumers, this necessarily increases firm profits, and hurts consumers (Gössl and Rasch, 2020). In our model with uninformed consumers, this may no longer hold, and firms may lose and consumers benefit if the market is sufficiently opaque (that is, the share of uninformed consumers is sufficiently large).…”

“…With regard to consumer surplus, note that the previous literature suggests that consumers are affected most by the fixed fee (Gössl and Rasch, 2020). Because the fixed fee first decreases and then increases as the market becomes more and more transparent, this translates into the effect a change in transparency has on consumer surplus: It first increases, and decreases for (very) high levels of consumer-side transparency.…”

“…Surveys are provided by Armstrong (2006) and Stole (2007). As in Yin (2004) and Gössl and Rasch (2020), we compare different pricing scenarios (two-part tariffs, only fixed prices). But, in contrast to the literature, we study a setting in which consumers are only partially informed about relevant price components.…”

“…Given expected demand levels, a consumer with information status j who is located at x, and who expects to purchase q j i (x; p i ) anticipates the following utility when is also used in Gössl and Rasch (2020). The shipping model allows us to derive tractable results, and fits to the market we have in mind.…”

“…Because consumer information does not matter in this scenario, our model simplifies to the analysis in Gössl and Rasch (2020). From expression (2) it follows that the local demand of a consumer at firm i is…”