Price discrimination and three part tariffs in a duopoly

The paper studies how second degree price discrimination can be implemented\nin a duopoly with differentiated products. Two firms serve consumers\nhaving heterogeneous willingness to pay for the good, willingness\nto pay being private knowledge. Consumers choose from a menu of tariffs\nand are subsequently billed according to the chosen tariff. Although product\ndifferentiation enables the firms to implement price discrimination, it\nis shown that competition has important effects on the tariff structure. A\nfully separating equilibrium can only be reached if the firm is allowed to\nuse three part tariffs, i.e., quantity discounts conditional on a certain minimum\nusage level, in addition to two part tariffs, i.e., quantity discounts on the condition that a fixed fee is paid in advance.