A Characterization of Implementability of Allocation Rules: the Use of a Menu of Three-Part Tariffs

Posting a menu of three-part tariffs is a widespread phenomenon in the telecommunication industry. The paper provides a characterization of the implementability of allocation rules involving bunching in the linear framework of Mussa and Rosen [5]. I show that an allocation rule is non-decreasing if and only if it is implementable by a menu of threepart tariffs. Furthermore, I extend the notion of implementability in Rochet [7, 8] to take into account type-dependent reservation utility, introducing the notion of voluntary implementability. I show that a pair of an allocation rule and an information rent is incentive compatible and individually rational if and only if it is voluntarily implementable by a menu of three-part tariffs.