Working Paper: NBER ID: w12370
Authors: Peter C. Reiss; Matthew W. White
Abstract: This paper examines how to evaluate consumer welfare when consumers face nonlinear prices. This problem arises in many settings, such as devising optimal pricing strategies for firms, assessing how price discrimination affects consumers, and evaluating the efficiency costs of many transfer programs in the public sector. We extend prior methods to accommodate a broad range of modern pricing practices, including menus of pricing plans. This analysis yields a simpler and more general technique for evaluating exact consumer surplus changes in settings where consumers face nonlinear prices. We illustrate our method using recent changes in mobile phone service plans.
Keywords: Consumer Welfare; Nonlinear Pricing; Price Discrimination; Consumer Surplus
JEL Codes: D12; D40; H20; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonlinear pricing (D49) | consumer surplus (D46) |
| income elasticity (D12) | consumption choices (D10) |
| nonlinear pricing + income elasticity (D49) | consumer welfare (D69) |
| changes in pricing plans (D49) | marginal prices for consumers (D40) |
| self-selection into pricing plans (D49) | evaluation of consumer welfare (D18) |