Menus of multi-part tariffs under asymmetric information

We investigate how a firm strategically manages the characteristics of a menu of three-part tariff to maximize its profit while consumers self-select the products. As the unit price designed for low-type segments and fixed fee as a function of free allowance increases, the firm can make a higher profit by offering more quantity units to its low segment customers. These two dynamic forces also shape the information rent, which is generated due to an information asymmetry, and hence reduced. Thus, this condition will eventually mitigate the issue of cannibalization.

Automated summary

This study examines how a company strategically manages the characteristics of a three-part tariff menu to maximize profit and address the issue of information asymmetry.