Preprint A704/2011
The marginal tariff approach without single-crossing
Aloisio Araujo | Vieira, Sergei | Moreira, Humberto
Keywords: single-crossing | marginal tariff | demand profile approach | Spence and Mirrlees condition (SMC)
This paper studies a one-dimensional nonlinear pricing model where the single- crossing condition does not hold. The solution for the problem is based on optimally splitting the set of the demanded quantities in subintervals that characterize the higher and lower demand groups. In each one of them, the monopolist uses the demand profile approach. At the same time, due to the lack of the single-crossing property, a new global incentive constraint has to be considered, which prevents the migration across groups. We then modify the demand profile approach accordingly to suit our problem and give a characterization of the solution.