%0 Journal Article
%T A Pedagogical Note on Multitier Pricing Scheme
%A Tai-Liang Chen
%A Winston W. Chang
%J The American Economist
%@ 2328-1235
%D 2018
%R 10.1177/0569434517745311
%X This note derives a new formula for determining a monopolist¡¯s optimal multitier pricing scheme for any given number of tiers. It further characterizes Gabor¡¯s (Review of Economic Studies) two-tier pari passu marginal revenue function to the n -tier case. By introducing the individual tier¡¯s marginal revenue and the pari passu marginal revenue in a linear demand case, this note provides a perceptive graphical representation of the optimal pricing scheme, revealing that all tiers¡¯ outputs are equal, the last tier¡¯s price is always higher than the marginal cost, and an increase in the number of tiers increases social welfare. In a class of nonlinear demand functions, it shows that starting from the first tier, the tiers¡¯ outputs are monotonically increasing (decreasing) if the demand function is strictly convex (concave). It also shows that the equal-tier-output property preserves in the linear demand case with the total output fixed as a constraint. JEL Classification: D01, D21, D42, L12, L2
%K monopoly
%K second-degree price discrimination
%K multitier pricing
%K public utility pricing
%K social welfare
%U https://journals.sagepub.com/doi/full/10.1177/0569434517745311