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Two Part Tariff: Presented By-Sambuddha Sarkhel Yuti Patel

This document discusses two-part tariff pricing systems. It explains that a two-part tariff divides the price of a product into a per-unit charge and a lump-sum fee. Producers can use a two-part tariff to capture more surplus than monopoly pricing alone. The document provides examples of how electricity tariffs and personal seat licenses for sports teams employ two-part tariffs, charging an entry fee along with a per-unit price.

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Sambuddha Sarkhel
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174 views16 pages

Two Part Tariff: Presented By-Sambuddha Sarkhel Yuti Patel

This document discusses two-part tariff pricing systems. It explains that a two-part tariff divides the price of a product into a per-unit charge and a lump-sum fee. Producers can use a two-part tariff to capture more surplus than monopoly pricing alone. The document provides examples of how electricity tariffs and personal seat licenses for sports teams employ two-part tariffs, charging an entry fee along with a per-unit price.

Uploaded by

Sambuddha Sarkhel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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TWO PART TARIFF

PRESENTED BY-
SAMBUDDHA SARKHEL
YUTI PATEL
•Pricing system: Price of the product is divided into two parts:
Per-unit charge and Lump-sum fee
INTRODUCTION
•Aim: To raise more of the market surplus through a two-part
pricing scheme
•To take advantage of this technique, the following conditions
must be met:

NECESSARY •1. For two-part tariff to be viable, The supplier must have a
strong position (market power) in the industry.
CONDITION •2. The manufacturer must have control access to the product
i.e; to put it another way, the product cannot be purchased
without paying the entry fee.
•Producers have leverage over their pricing arrangements:
Use a two-pair tariff in their best interest.

PRODUCERS •Two-part tariff more effective compared to Monopoly


INCENTIVE Pricing: Allows producers to sell more while also capturing
more market surplus than monopoly pricing would
•Setting price @ MC = WTP or Per-unit price = MC and then
setting the entrance fee equivalent to the market surplus
created by consuming at the per-unit price.

•Note: The entrance fee is the highest amount that can be


BASIC MODEL billed until a customer finally exits the market.

•Issue with this particular model is that it makes an implicit


assumption that all customers have the similar ability to pay,
but it's still a good place to start.
MONOPOLY AND TWO-PART TARIFF
• Suppose Nmims Bangalore campus bookstore has a monopoly
over the supply of textbooks. The bookstore hires someone to
estimate their (market) demand curve and receives the following
information (where P = price and Q = quantity demanded):
• P = 100 - 1.5Q
NUMERICAL • MR = 100 - 3Q
EXAMPLE • AC = 40, MC = 40
• Students are asked to pay a cover charge- The lower the textbook
price, the more consumers save, greater Consumer Surplus.
• Two-part tariff pricing approach allows them to recover any lost
profits (from lower prices) by raising the cover charge.
• Given the demand for economics textbooks, the bookstore
decides on a price of $40 per book.

• P = 100 - 1.5Q

NUMERICAL • 40 = 100 - 1.5Q


• Q = 40
EXAMPLE
• In the absence of any cover charge, this would allow
CONTINUED consumers to obtain (overall) consumer surplus of $1200.

• This is illustrated in the graph next slide, where the blue area
represents consumer surplus.
CONSUMER
SURPLUS
GRAPH
• 1) ELECTRICITY TARIFF
CASE STUDIES
• 2) PERSONAL SEAT LICENSES OF IPL MATCHES
ELECTRICITY
TARIFF
• A certain amount of money rate is charged to the consumer for consumption of
electrical energy. This money rate is known as Tariff.

• The tariff is mostly decided upon the paying ability of a consumer.


• Tariff is made keeping the following points in forward:-

• 1.     Total running and fixed charges.


INSIGHT • 2.     Service given.
(CASE 1) • 3.     Consumer paying capability.

• The total charge to be made from the consumer is split into two components.

• Total charges = Rs (X*kW + Y*kWh)

• One is for the annual fixed and the other is the amount to be paid for the actual
consumption of power.
PERSONAL
SEAT
LICENSING
IN IPL
• A pure example of a two-part tariff is the personal seat
license (PSL).
• ·People pay for the right to buy Season tickets
• Two part Tariff: Entrance fee+ per unit charge
• i)  Per unit price = MC
• ii) Entrance fee = Resulting CS
INSIGHT
(CASE 2)
• PSLs are a fairly recent development, typically used by teams
and municipalities as a way to help finance a new sports
facility.
• High-demand fans (with enough income or wealth) are
targeted
EXAMPLE OF
• Right to then purchase season tickets each year, typically for
EDEN as long as the stadium is used by the team.
GARDENS
THANK YOU
BY YUTI PATEL & SAMBUDDHA SARKHEL

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