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Optimal Nonuniform Prices

M. Barry Goldman¹; Hayne E. Leland¹; David S. Sibley^2,3

¹ University of California, Berkeley · ² Bell (Canada) · ³ Nokia (United States)

We consider optimal nonuniform pricing schedules, where the price depends upon the amount purchased. Such schedules are regularly used by public utilities and other services. Welfare-optimal nonuniform prices are related to the theory of optimal uniform prices developed by Ramsey. We characterize situations in which upward or downward discontinuities in pricing schedules are optimal. Our results are applicable to a number of related problems, including optimal taxation, insurance, and incentives.

DOI

10.2307/2297694

Volume

51 (2)

Pages

305

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