Partitioned Pricing and Collusion on Surcharges

Abstract Partitioned pricing is a practice that divides the price of product into base and one or more mandatory surcharges. This paper develops theory partitioned using duopoly model where owner each firm determines surcharge but delegates setting to manager. In equilibrium, both firms choose over conventional all-inclusive pricing. Moreover, leads higher full prices larger profits than Most surprisingly, collusion on surcharges without any coordination as profitable prices.