Nonlinear Pricing with Average-Price Bias

A-Tier
Journal: American Economic Review: Insights
Year: 2020
Volume: 2
Issue: 3
Pages: 375-96

Score contribution per author:

2.011 = (α=2.01 / 2 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

Empirical evidence suggests that consumers facing complex nonlinear prices often make choices based on average (not marginal) prices. Given such behavior, we characterize a monopolist's optimal nonlinear price schedule. In contrast to the textbook setting, nonlinear prices designed for "average-price bias" distort consumption downward for consumers with the highest marginal utility and typically feature quantity premia rather than quantity discounts. These properties arise because the bias replaces consumer information rents with "curvature rents." Whether or not a monopolist prefers consumers with average-price bias depends upon underlying preferences and costs.

Technical Details

RePEc Handle
repec:aea:aerins:v:2:y:2020:i:3:p:375-96
Journal Field
General
Author Count
2
Added to Database
2026-01-25