On an Open Question Regarding When Two-Block Pricing Weakly Dominates Two-Part Tariff

Leland and Meyer showed through an example that when the distribution of consumer types is nondegenerate, there exist two-block pricing plans that yield strictly higher producer surplus than the profit maximizing two-part tariff scheme. This led them to pose the following question: does weak dominance (in the sense of profit) rather than strict dominance of two-block pricing over two-part tariff hold only when the distribution of buyer-types is degenerate? This note shows that the answer to this question is, No: even when the distribution of consumer types is continuous, it is possible that the best two-block pricing scheme performs no better than the best two-part tariff. JEL Classification: D4