Monopolistic Two-Part Pricing Arrangements

This article is mainly concerned with Walter Oi's Disneyland problem: pricing a fixed input (admission to the park or Polaroid cameras) and a variable input (individual rides or Polaroid film) to maximize profit, though profit-constrained welfare maximization is also treated. The structure of demand in such situations is fully described when customers are either households or competitive firms. The implications of customer diversity and other market attributes for optimal policies are presented. The welfare properties of single-price and two-part tariff monopoly equilibria are compared, and potential welfare gains from tying contracts are discussed.