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The Political Economy of Pricing: Comparing the Efficiency Impacts of Flat Rate vs. Two-Part Tariffs

In recent years there has been much debate on the regulation of telecommunications pricing. Pricing is a major concern of users, suppliers and regulators. Trade-offs may exist not only between consumers and suppliers but also within each group. Users, for example, tend to choose a tariff that best benefits them. Their goal is to maximize the consumer surplus associated with the consumption of telecommunications service. Within the group of users, however, different interest groups may exist. For example, heavy users have quite different preferences from those of light users, preferring a quantity discount composed of a lower usage charge (while light users favor a quantity premium composed of a lower initial charge).