Structural Analysis of Nonlinear Pricing

This paper proposes a methodology for analyzing nonlinear pricing data with an illustration on cellular phone. The model incorporates consumer exclusion. Assuming a known tariff, we establish identification of the model primitives using the first-order conditions of both the firm and the consumer up to a cost parameterization. Next, we propose a new one-step quantile-based nonparametric method to estimate the consumers’ inverse demand and their type distribution. We show that our nonparametric estimator is root-N-consistent. We then introduce unobserved product heterogeneity with an unknown tariff. We show how our identification and estimation results extend. Our analysis of cellular phone consumption data assesses the performance of alternative pricing strategies relative to nonlinear pricing.