In this paper, I study the theoretical and econometric implications of agents' uncertainty concerning their future consumption when a monopolist offers them either a unique, mandatory nonlinear tariff or a choice in advance from a menu of optional two-part tariffs. Agents' uncertainty is resolved through individual and privately known shocks to their types. In such a situation the principal may screen agents according to their ex ante or ex post type, by offering either a menu of optional tariffs or a standard nonlinear schedule. The theoretical implications of the model are used to evaluate a tariff experiment run by South Central Bell in two cities in Kentucky in 1986. The empirical approach explicitly accounts for the existence of informational asymmetries between local telephone users and the monopolist, leading to different, nested, econometric specifications under symmetric and asymmetric information. The empirical evidence suggests that there exists a significant asymmetry of information between consumers and the monopolist under both tariff regimes. All expected welfare components failed to increase with the introduction of optional tariffs for the estimated value of the parameters.

When a firm offers several tariff options to its customers, the possibility arises that they will make an ex post mistake in tariff choice. This occurs since consumers cannot commit to a certain purchase level at the time they subscribe to the service option and, thus, they might find out later that a different choice of tariff could have resulted in a lower payment for their actual level of consumption. This is a common feature of increasingly important subscriptions markets, in which buyers and sellers maintain long-term, nonanonymous relations and where learning induces interesting dynamics. On the one hand, buyers may learn their taste over time, thus making the right choice as times goes by; on the other hand, the seller may design options to identify the “type” of each buyer and, if possible, to extract a higher proportion of their consumer surplus by offering tariff options that are better tailored to the profile of the consumer. This paper focuses on the first type of learning. In turn I document buyer behavior in a subscriptions market using data from a tariff experiment run by South Central Bell (SCB) in Kentucky during the second half of 1986. The most frequently studied case of subscriptions markets is the choice among Optional Calling Plans (OCPs) in the telephone industry. This paper shows that, contrary to the conven-

Understanding when and how individuals think about real-life problems is a central question in economics. This paper studies the role of inertia (inattention), state dependence, and learning. The empirical setting is a tariff experiment, when optional measured tariffs for local telephone calls were introduced unanticipatedly. We find that consumers tend to align their choices of tariff and telephone use levels correctly. Despite low potential savings, mistakes are not permanent, as individuals actively engage in tariff switching in order to reduce the monthly cost of telephone service. Ignoring unobservable heterogeneity and the endogeneity of past choices would have reversed these results.

We study commodity taxation and characterize the Laffer curve, a trade-off between tax rates and revenue, in noncompetitive markets. Pricing in these markets leads to incomplete tax pass-through and agents re-optimize their purchase and pricing decisions in response to any tax change. We use detailed data from Pennsylvania, a state that monopolizes retail sales of alcoholic beverages, to estimate a model of demand for horizontally differentiated products that ties consumers' demographic characteristics to heterogeneous preferences for spirits. We find that under the state's current tax policy, spirits are overpriced. Distillers respond to decreases in the tax rate by increasing wholesale prices, which limits the state's revenue gain to only 13% of the incremental tax revenue predicted under the common assumption of perfect competition. The strategic response of noncompetitive firms to changes in taxation therefore flattens the Laffer curve significantly.

Under Medicare Part D, senior citizens choose prescription drug insurance offered by numerous private insurers. We examine nonpoor enrollees' actions in 2006 and 2007 using panel data. Our sample reduced overspending by $298 on average, with gains by 81 percent of them. The greatest improvements were by those who overspent most in 2006 and by those who switched plans. Decisions to switch depended on individuals' overspending in 2006 and on individual-specific effects of changes in their current plans. The oldest consumers and those initiating medications for Alzheimer's disease improved by more than average, suggesting that real-world institutions help overcome cognitive limitations.

Liberalization of the European automobile distribution system in 2002 limits the ability of manufacturers to impose vertical restraints, leading to a substantial increase in competitive pressure among dealers. We estimate an equilibrium model of profit maximization to evaluate how dealers change their innovation adoption strategies following the elimination of exclusive territories. Using French data we evaluate the existence of complementarities between the adoption of software applications and the scale of production. Firms view these innovations as substitutes and concentrate their effort in one type of software as they expand their scale of production. Results are robust to the existence of unobserved heterogeneity.