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- Title
Nonlinear Price Schedules and Tied Products.
- Authors
Ormiston, Michael B.; Phillips, Owen R.
- Abstract
Illegal tying arrangements often occur when a monopolist sells a product that consumers combine with a complementary requirement sold competitively. Tabulating cards for a computer and service contracts on specialized equipment are examples of tied requirements. Rather than simply offering the complement at its competitive price, this paper shows that it can be more profitable for a monopolist to also let consumers bundle any amount of their requirement 'needs' with the basic product at a fixed price. This alternative creates a nonlinear price schedule. Two examples illustrate the demand conditions that enhance the profitability of this strategy, and show that profits can closely approximate those earned from tying. Because the bundle is presented as a non-coercive option to buyers, legal entanglements are avoided. Certain nonlinear schedules are also shown to be Pareto-superior to a profit-maximizing linear price schedule.
- Subjects
MONOPOLIES; TIE-ins (Marketing); COMPETITION; CONSUMERS; FIXED prices; PRICES; PROFITABILITY
- Publication
Economica, 1988, Vol 55, Issue 218, p219
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2554469