The Welfare Performance Of Sequential Pricing Mechanisms

Consumers are commonly required to subscribe to particular tariff options be-fore uncertainty regarding their future purchases gets resolved. Since the general comparison of welfare performance of different pricing mechanisms is ambigu-ous, this article empirically evaluates the expected welfare associated with stan-dard nonlinear pricing and optional tariffs by using information directly linked to the type of individual consumers. Results show that tariffs composed of nonlinear options do not necessarily outperform simpler pricing strategies in terms of ex-pected profits. Furthermore, evidence suggests that a menu of optional two-part tariffs dominates any other pricing strategy from an expected welfare perspective. 1