Menus of multi-part tariffs under asymmetric information

ABSTRACT

We investigate how a firm strategically manages the characteristics of a menu of three-part tariff to maximize its profit while consumers self-select the products. As the unit price designed for low-type segments and fixed fee as a function of free allowance increases, the firm can make a higher profit by offering more quantity units to its low segment customers. These two dynamic forces also shape the information rent, which is generated due to an information asymmetry, and hence reduced. Thus, this condition will eventually mitigate the issue of cannibalization.

KEYWORDS:

• Multi-part tariffs
• information asymmetry
• pricing
• agency theory

JEL CLASSIFICATION:

• L00
• D40

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This paper was supported by the Konkuk University in 2021.