Heterogeneous Subscribers and the Optimal Two-part Tariff of Telecommunications Service

In this article, optimal two-part tariffs of a bi-directional telecommunications service are examined. Heterogeneous users are assumed to formulate social demand for the service. Two regimes of supplier are considered: monopoly and non-monopoly. In the latter, the supplier which enjoyed monopoly is faced with the entry of a competitive mpplier. Demand externalities which are conspicuous in telecommunications service are introduced into the model. The supplier is assumed to maximize the profit or to be forced to maximize the social benefit derived from the service. A nonlinear optimization method is applied to derive the optimal tariff. It is shown that the tariff diverges from conventional rules for public utility pricing.