Deviations from Marginal Cost Pricing: Multipart Pricing

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.


  1. See reference section for Principles, Options, and Considerations in Rate design and the reference section for Economics of Alternative Price Structures.