The marginal tariff approach without single-crossing

Abstract

We study a specific class of one-dimensional monopolistic nonlinear pricing models without the single-crossing condition. In this class we show that the monopolist optimally splits quantities in two groups: low and high demand. The marginal tariff is sufficient to determine the demand curve (or, equivalently, the monopolist can apply the demand profile approach) within each group. However, given the failure of the single-crossing condition, a global incentive compatibility constraint that prevents deviation across demand groups binds. Therefore, the demand profile approach is no longer valid and we have to modify it accordingly to deal with our problem. We give a complete characterization of its solution. (C) 2015 Elsevier B.V. All rights reserved.