Introductory offers in two-part tariffs: time-inconsistency and signaling approach

• Autor(a) principal: Zheng, Hou
• Data de Publicação: 2016
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/13242
• topic: Introductory Offer; Time-inconsistency; Contract Design; Signal; Estratégias; Preços; Empresa; Produto industrial; Mercados

Certain pairs of goods are such complements that a basic good exclusively enables the usage of a consumable good, which permits the firm to design the prices of these pair of goods in the form of two-part tariffs. Studies have been made regarding introductory offers in repeated purchases of a product, while we discuss about this topic with respect to the fixed fee in an aforementioned two-part tariff, examples including the pricing strategy in markets of printers, capsule coffee machines, etc. We take two approaches to model the pricing strategy of a firm. First we consider a rational firm facing two types of time-inconsistent consumers, which is a typical setting in behavioral IO. We show that firms generally make introductory offers accompanied by a raise in per-unit price in response to time-inconsistent consumers, which ex post grants the consumers more surplus and a loss in the firm's profit. Nevertheless, when time-inconsistency and second-degree price discriminating contract design interact with each other, the result becomes more nuanced: fixed fee may rise and per-unit price may decrease under some conditions. Secondly we explore the signaling effect of an introductory offer. We show that a firm providing high-quality products may use an introductory offer as a signal of its quality by lowering the expected profit of the low-quality firm from imitating such pricing. We also explored whether our theory is robust in different conditions of time frame or competition.