Two-Part Marginal Cost Pricing Equilibria With n Firms: Sufficient Conditions for Existence and Optimality

Aaron S. Edlin, UC Berkeley
Mario Epelbaum, Morgan Stanley, New York

Abstract

We explore the interactions among firms with increasing returns regulated to break even by pricing with two-part tariffs. We provide conditions for existence and for efficiency of general equilibria with n-firms. This involves finding hookup fees that are voluntarily paid and cover the firms' losses from marginal cost pricing-a problem that because of both substitution and income effects is complicated by multiple firms using two-part tariffs, but that must be solved to ensure the continuity of demands necessary to prove break-even equilibria exist.