Two-part marginal cost pricing in a pure fixed cost economy

Two-part marginal cost pricing is the pricing scheme where firms, in addition to the linear price equated to the marginal cost of production, charge non-uniform access fees to customers. Using a general equilibrium model with non-convex technologies, we examine the optimality and existence of this p...

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Bibliographic Details
Published in:Journal of mathematical economics 1996, Vol.26 (3), p.363-385
Main Author: Moriguchi, Chiaki
Format: Article
Language:English
Subjects:
Cost prices
Economic models
Economic theory
Economies of scale
Fixed cost
Fixed costs
Increasing returns to scale
Market structure
Monopolies
Natural monopoly
Pricing policies
Returns to scale
Studies
Two-part marginal cost pricing
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Summary:Two-part marginal cost pricing is the pricing scheme where firms, in addition to the linear price equated to the marginal cost of production, charge non-uniform access fees to customers. Using a general equilibrium model with non-convex technologies, we examine the optimality and existence of this pricing scheme. First, it is shown that two-part marginal cost pricing is an optimal pricing regulation for monopolies when increasing returns to scale arise solely from the presence of fixed costs. Second, a sufficient condition for the existence of two-part marginal cost pricing equilibria is provided under the bounded losses condition. This generalizes the result of Brown et al.
ISSN:0304-4068
1873-1538
DOI:10.1016/0304-4068(95)00749-0