Uncertain Consumer Tastes and Two-Part Tariff

Hao Wang
China Center for Economic Research Working Paper NO. E2007006 August 2007

A service provider sells to homogenous risk-averse consumers through a two-part tariff. The consumers have uncertain tastes toward the service. They subscribe the service before the uncertainty resolves. In contrast with the common view that a monpolist’s optimal two-part tariff for homogeneous consumers should entail a usuage rate equalising to the firm’s marginal production cost, I show that when consumers have uncertain tastes, the service provider’s optimal two-part tariff entails a usuage rate that is greater than the marginal cost.