1. Presented by Travieso Gonzalez
A Disneyland Dilemma: Two-Part Tariffs for a Mickey Mouse Monopoly By Walter Y. Oi
Presented by Travieso Gonzalez

2. A two-part tariff is one in which the consumer pays a lump sum sum for the right to buy a product.
Examples Copying machines, Country club fees, SAM’s, and rate structures of some public utilities.

3. A two-part tariff introduces a discontinuity in the consumer’s budget equation:
XP+Y=M-T if X>0
Y=M if X=0

4. Under two-part tariff, the consumer’s demand for rides depends on the price per ride P, income M, and the lump sum admission tax T
X=D(P, M-T)

5. If there is only one consumer, or if all consumers have exactly the same utility functions and incomes, we can determine an optimal two-part tariff for the monopoly
Profits are given by
Where C(X) is the total cost function

6. Differentiation with respect to T gives us:
Where c’ is the marginal cost of producing an additional ride.

7. The max lump sum tax T* that can be charged is
And

8. Differentiating profit with respect to P we get:
From before we get Or

11. The total profits can be given by, and reduced to only one parameter the price P
Where X is the market demand for rides T=T* is the smallest of the N consumer surpluses, and C(X) is the total cost function.

12. Set dπ/dP equal to zero to obtain the optimum price

14. A discriminatory two part tariff, in which price is equated to marginal cost and all consumer surpluses are appropriated by lump sum taxes, is best of all pricing strategies for profit-maximizing monopoly.