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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/31444
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| Title: | Nonlinear Pricing with Product Customization in Mobile Service Industry |
| Authors: | Luo, Yao |
| Keywords: | Nonlinear Pricing, Product Customization, Mobile Service |
| Issue Date: | 17-Jan-2012 |
| Series/Report no.: | Working Papers;11_28 |
| Abstract: | This paper proposes to incorporate product customization in the Maskin
and Riley (1984) nonlinear pricing model in order to capture major
features of mobile service data. In particular, consumers are
characterized by a two-dimensional type. One dimension is observed by
the provider and integrates product customization, while the other is a
standard parameter of adverse selection, which is unobserved by the
provider and makes it necessary for the provider to discriminate among
consumers with different tastes through nonlinear pricing. We then
propose a novel method to aggregate the multiple-dimensional voice
consumption into one-dimensional index. We show that the model structure
is identified under the following conditions: The marginal utility
function is multiplicatively separable in consumers’ tastes, and
consumers’ observed and unobserved heterogeneity are independent.
Empirical results show that both dimensions of heterogeneity are
important. Due to asymmetric information, 50% of the
"second-best" social welfare is left "on the table"
in order to screen heterogeneous consumers. Moreover, if costly product
customization does not affect subscribers’ utility, 20% of
subscribers would not be served. |
| URI: | http://hdl.handle.net/2451/31444 |
| Appears in Collections: | NET Institute Working Papers Series
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