A Note on the Economics of Pass-Through With Two-Part Tariff Pricing

Rothman, Dov

doi:10.1093/joclec/nhv014

Cited by 3 publications

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“…Moreover, the presence of risk aversion interacts with the contract space. Prior work has highlighted that antitrust analysis assuming linear pricing can be misleading in environments with twopart tariffs (e.g., Carlton and Keating (2015a); Rothman (2015)). The example underscores the importance not only of the shape of contracts in governing market outcomes, but of the underlying sources of those contracts.…”

Section: Discussionmentioning

confidence: 99%

Risk Aversion and Double Marginalization

Ghili

Schmitt

2018

SSRN Journal

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In vertical markets, eliminating double marginalization with a two-part tariff may not be possible due to downstream firms' risk aversion. When demand is uncertain, contracts with large fixed fees expose the downstream firm to more risk than contracts that are more reliant on variable fees. In equilibrium, contracts may thus rely on variable fees, giving rise to double marginalization. Counterintuitively, we show that increased demand risk or risk aversion can actually mitigate double marginalization. We also characterize several sufficient conditions under which increased risk or risk aversion does exacerbate double marginalization. We conclude with an application to merger analysis.* We thank Larry Samuelson for detailed and insightful comments.

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Section: Discussionmentioning

confidence: 99%

Risk Aversion and Double Marginalization

Ghili

Schmitt

2018

SSRN Journal

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Sharing the burden of subsidization: Evidence on pass-through from a subsidy revision in Medicare Part D

Carey

2021

Journal of Public Economics

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Risk Aversion and Double Marginalization

Ghili

Schmitt

2018

SSRN Journal

View full text Add to dashboard Cite

In vertical markets, eliminating double marginalization with a two-part tariff may not be possible due to downstream firms' risk aversion. When demand is uncertain, contracts with large fixed fees expose the downstream firm to more risk than contracts that are more reliant on variable fees. In equilibrium, contracts may thus rely on variable fees, giving rise to double marginalization. Counterintuitively, we show that increased demand risk or risk aversion can actually mitigate double marginalization. We also characterize several sufficient conditions under which increased risk or risk aversion does exacerbate double marginalization. We conclude with an application to merger analysis. * We thank Larry Samuelson for detailed and insightful comments.

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A Note on the Economics of Pass-Through With Two-Part Tariff Pricing

Abstract: All opinions and conclusions expressed herein are those of the author(s) and do not necessarily represent the views of Analysis Group.

Cited by 3 publications

References 0 publications

Risk Aversion and Double Marginalization

Risk Aversion and Double Marginalization

Sharing the burden of subsidization: Evidence on pass-through from a subsidy revision in Medicare Part D

Risk Aversion and Double Marginalization

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