Two-Part Tariffs

Definition

• divide into entry fee and usage fee
  • entry fee payed only once
  • usage fee payed continuasly
• high entry, low usage
  • e.g. disney world → 85$ upfront, rides are free
• low entry, high usage
  • e.g. prater → entry free, rides are 5-20$ each
• how to maximize
  • set entry price to marginal cost
  • set usage fee to demand

Multiple Groups

• either limit yourself to just one group
  • set entry fee p* to MC
  • set usage fee T* to area between MC and Demand
• or
• adjust according to the lowest group
  • otherwise consumers in lowest group is not willing to pay
  • then extract more via the usage fee $\pi =\text{entry fee}+\text{maximum profit 1}+\text{maximum profit 2}-\text{MC}\ast \text{combined profit 1 and 2}$ $=(15-p^{\ast }{)}^2+(p^{\ast }-1)(35-2p^{\ast })\Rightarrow \text{maximize }{p}^{\ast }$
• rule of thumb:
  • todo slides