In addition to Ramsey pricing, the operator also generally finds that multi-part tariffs1 are more profitable than linear tariffs. A multi-part tariff is one in which the operator charges separate prices for different elements of the service. A linear tariff is one in which the operator charges a single price for the service. A common multi-part tariff is the two-part tariff in electricity, under which the customer pays a monthly fee for access and a usage fee for consumption of electricity. With this two-part tariff, the operator is able to charge a price equal to marginal cost for electricity, which is profit maximizing, and deviate from marginal cost pricing in the fee for access. A common linear tariff is flat-rate telephone service, under which the customer pays a single monthly price that includes both access and usage.
- See reference section for Principles, Options, and Considerations in Rate design and the reference section for Economics of Alternative Price Structures.