Optimal Multiproduct Nonlinear Pricing
with Correlated Consumer Types
Yossi Spiegel, Tel Aviv University
Simon Wilkie, Caltech
Current version: March 2001
Abstract:  We examine the design of nonlinear prices by a multiproduct monopolist who serves customers with multidimensional but correlated types.  We show that the monopoly can exploit the correlations between consumers' types to design pricing mechanisms that fully extract the surplus from each consumer.  Our main insight is that regardless of the dimensionality of the consumers types and the number of goods that the monopoly produces, the surplus that each consumer gets from buying is a scalar.  Hence, it is possible to design a two step mechanism where in the first step the monopoly induces the consumers to make efficient purchasing decisions (given their private information), and in the second step the monopoly extracts the surplus from each consumer via a (random) fixed fee.
Keywords:  nonlinear prices, multidimensional types, correlated types, incremental cost, Clarke-Groves mechanism

JEL Classification Numbers:  D42, D82

Last updated: August 23, 2001