A monopolist's ability to conduct non-linear pricing is limited because customers can, at a cost, unbundle bundled output. Three pricing strategies are available to a firm: (1) a separating strategy; (2) a pooling strategy; and (3) an exclusion strategy. Each is optimal for some set of unbundling cost and distribution of customer types. The optimal pricing strategies are contrasted with the well studied benchmark cases, in which unbundling costs are either zero or arbitrarily high. It is shown that it is not always possible to extrapolate the conclusions from the benchmark cases with respect to pricing, profitability, consumer surplus or efficiency.
History
Publication title
Review of Industrial Organization
Volume
50
Pagination
345-366
ISSN
0889-938X
Department/School
TSBE
Publisher
United States
Place of publication
Springer New York LLC
Rights statement
Copyright 2016 Springer Science+Business Media New York