TWO‐PART PRICING FOR A MULTI‐PRODUCT MONOPOLIST

This paper examines profit‐maximizing multi‐part pricing arrangements by multi‐product monopolists. The results indicate that prices set by such firms will deviate from the marginal‐cost‐pricing efficiency norm when multi‐part tariffs can be set on only a subset of the firm's product line. Per unit prices will be set above marginal cost when the monopolist sells goods that are substitutes, while per unit prices for complements may be set above or below marginal cost. In either case, the pricing strategy will involve increasing the demand for goods on which an entry fee can beset.