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Working Papers (1996), ESSEC Business School

Two-parts Tariffs : Behavior of the Non-discriminating Monopsony

The properties of two-part tariffs have been studied at length when the price-setter is a private or a public monopoly. The pure theory of price-setting by the monopsony has so far received less attention. This text analyzes the behavior of a purchasing unit minimizing the cost of obtaining a definite quantity of a given commodity from a set of potential suppliers. The legal context does not tolerate discrimination and two-part tariffs are the only non-linear pricing policy admitted. The buyer is fully informed of the cost functions of the suppliers. It is shown that upstream profit extraction is not always complete, explaining some support of the anti-discrimination rules by privileged suppliers. The distribution of activity among suppliers appears to differ from an efficient pattern and upstream vertical integration could generally reduce the private and the social cost of production of the purchased quantity.

CONTENSOU, F. (1996). Two-parts Tariffs : Behavior of the Non-discriminating Monopsony. ESSEC Business School.