Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/77583
Authors: 
Herweg, Fabian
Mierendorff, Konrad
Year of Publication: 
2011
Series/Report no.: 
Working Paper Series, Department of Economics, University of Zurich 12
Abstract: 
We consider a model of firm pricing and consumer choice, where consumers are loss averse and uncertain about their future demand. Possibly, consumers in our model prefer a flat rate to a measured tariff, even though this choice does not minimize their expected billing amount - a behavior in line with ample empirical evidence. We solve for the profit-maximizing two-part tariff, which is a flat rate if (a) marginal costs are not too high, (b) loss aversion is intense, and (c) there are strong variations in demand. Moreover, we analyze the optimal nonlinear tariff. This tariff has a large flat part when a flat rate is optimal among the class of two-part tariffs.
Subjects: 
Consumer Loss Aversion
Flat-Rate Tariffs
Nonlinear Pricing
Uncertain Demand
JEL: 
D11
D43
L11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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