Buyer Uncertainty and Two-Part Pricing: Theory and Applications

  title={Buyer Uncertainty and Two-Part Pricing: Theory and Applications},
  author={Ivan P. L. Png and Hao Wang},
  journal={Management Science},
We consider two-part pricing of a service offered to risk-averse buyers subject to demand uncertainty. Buyers subscribe to the contract before resolution of the uncertainty. Sellers set two-part prices that trade-off between insuring buyers against the uncertainty and the ex post deadweight loss from inefficient usage. If marginal and total benefits from the service are positively correlated (a sufficient condition is that the uncertainty not directly affects the buyer benefit), the usage… CONTINUE READING