TheWelfare Performance of Sequential PricingMechanisms

Consumers are commonly required to subscribe to particular tariff options before uncertainty regarding their future purchases gets resolved. Since the general comparison of welfare performance of different pricing mechanisms is ambiguous, this paper empirically evaluates the expected welfare associated to standard nonlinear pricing and optional tariffs by using information directly linked to the type of individual consumers. Results shows that tariffs composed of nonlinear options does not necessarily outperforms simpler pricing strategies in terms of expected profits. Furthermore, the evidence suggests that a menu of optional two–part tariffs dominates any other pricing strategy from an expected welfare perspective. JEL: D42, D82, L96.