Three principles of competitive nonlinear pricing
Page, Frank H. and Monteiro, Paulo K. (2002) Three principles of competitive nonlinear pricing. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers).
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We make three contributions to the theory of contracting under asymmetric information. First , we establish a competitive analog to the revelation principle which we call the implementation principle. This principle provides a complete characterization of all incentive compatible, indirect contracting mechanisms in terms of contract catalogs (or menus), and allows us to conclude that in competitive contracting situations, firms in choosing their contracting strategies can restrict attention, without loss of generality, to contract catalogs. Second, we establish a competitive taxation principle. This principle, a refinement of the implementation principle, provides a complete characterization of all implementable nonlinear pricing schedules in terms of product-price catalogs and allows us to reduce any game played over nonlinear pricing schedules to a strategically equivalent game played over product-price catalogs. Third, applying the notion of payoff security (Reny (1999)) and the competitive taxation principle, we demonstrate the existence of a Nash equilibrium for the mixed extension of the nonlinear pricing game. Moreover, we identify a large class of competitive nonlinear pricing games whose mixed extensions satisfy payoff security. This paper extends earlier work by the first author (see Page 1992, 1999)).
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HF Commerce|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Nonlinear pricing, Discontinuous functions, Taxation -- Mathematical models, Equilibrium (Economics), Game theory|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Number of Pages:||51|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Description:||Original version, May, 2001; current version, June 2002|
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