Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2009
  • Chapter
  • Handbook of Pricing Research in Marketing

Nonlinear Pricing

By: Raghuram Iyengar and Sunil Gupta
  • Format:Print
ShareBar

Abstract

A nonlinear pricing schedule refers to any pricing structure where the total charges payable by customers are not proportional to the quantity of their consumed services. We begin the chapter with a discussion of the broad applicability of nonlinear pricing schemes. We note that the primary factor for the use of such schemes is the heterogeneity of the customer base. Such heterogeneity of preferences leads customers to choose different pricing plans based on their expected demand. We describe past analytical and empirical research. Past analytical work is categorized based on whether it is in a monopoly setting or a more general oligopoly context. Most past research has found two-part tariffs to be optimal in many settings. More recent research has begun to investigate the limits of such optimality and when a more general pricing scheme can be optimal. In the summary of empirical research on multi-part tariffs, we note that while nonlinear pricing schemes are popular, any analysis of demand under such schemes is nontrivial. One important reason is the two-way relationship between price and consumption in multi-part tariffs—the pricing scheme influences consumption, and the level of consumption determines the applicable per-unit price. We describe how researchers have addressed this and other such issues and then show a modeling framework that integrates all the issues. We end by discussing empirical generalizations, which also suggest some promising areas for future research.

Keywords

Price; Demand and Consumers; Duopoly and Oligopoly; Monopoly; Service Operations; Research

Citation

Iyengar, Raghuram, and Sunil Gupta. "Nonlinear Pricing." In Handbook of Pricing Research in Marketing, edited by Vithala Rao. MA: Edward Elgar Publishing, 2009.

About The Author

Sunil Gupta

Marketing
→More Publications

More from the Authors

    • March 2023
    • Faculty Research

    Best Buy: Renew Blue (C)

    By: Sunil Gupta, Dave Habeeb and Amram Migdal
    • March 2023
    • Faculty Research

    Best Buy: Renew Blue (B)

    By: Sunil Gupta, Dave Habeeb and Amram Migdal
    • March 2023
    • Faculty Research

    Best Buy: Renew Blue (A)

    By: Sunil Gupta, Dave Habeeb and Amram Migdal
More from the Authors
  • Best Buy: Renew Blue (C) By: Sunil Gupta, Dave Habeeb and Amram Migdal
  • Best Buy: Renew Blue (B) By: Sunil Gupta, Dave Habeeb and Amram Migdal
  • Best Buy: Renew Blue (A) By: Sunil Gupta, Dave Habeeb and Amram Migdal
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College