Chancellor’s Professor and Full Professor Zhiqi Chen’s paper titled “Partitioned Pricing and Collusion on Surcharges” has been accepted for publication in the Economic Journal – one of the top general interest journals in the discipline.
Congratulations, Professor Chen, on this publication!
Abstract: Partitioned pricing is a pricing practice that divides the price of a product into a base price and one or more mandatory surcharges. This paper develops a theory of partitioned pricing using a duopoly model where the owner of each firm determines the surcharge but delegates the setting of base price to a manager. In equilibrium, both firms choose partitioned pricing over the conventional all-inclusive pricing. Moreover, partitioned pricing leads to higher full prices and larger profits than all-inclusive pricing. Most surprisingly, collusion on surcharges without any coordination on base prices is as profitable as collusion on all-inclusive prices.