Two-part tariff

Non-linear pricing Non-linear prices usually consist of a two-part tariff. One part is fixed and does not depend on the quantity of the product consumed. The simplest way to establish this tariff is to estimate the potential loss (L) at the point where price = CMg and divide it by the number (N) of potential users, that is, the tariff equals L/N. The other part varies with the quantity consumed. In the case in which the variable component is fixed according to the marginal cost, the price structure is efficient and at the same time the company can avoid incurring a deficit. 

Finally, it should be noted however, that the rate of return regulation not necessarily exclude congestion pricing, two part tariffs or other more advanced tariff schemes in order to enhance rationing efficiency. 

PRICING FOR COORDINATION In many instances, suitable pricing schemes can help coordinate the supply chain. A manufactmer can use lot-size-based quantity discounts to achieve coordination for commodity products if the manufacturer has large fixed costs associated with each lot (see Chapter 11 for a detailed discussion). For products for which a firm has market power, a manufacturer can use two-part tariffs and volume discounts to help achieve coordination (see Chapter 11 for a detailed discussion). Given demand uncertainty, manufactmers can use buyback, revenue-sharing, and quantity flexibility contracts to spur retailers to provide levels of... 

Volume-based quantity discount Observe that the two-part tariff is really a volume-based quantity discount whereby the retailer DO pays a lower average unit cost as it purchases larger quantities each year (the franchise feeffis amortized over more units). This observation can be made explicit by designing a volume-based discount scheme that gets the retailer DO to purchase and sell the quantity sold when the two stages coordinate their actions. 

At this stage, we have seen that even in the absence of inventory-related costs, quantity discounts play a role in snpply chain coordination and improved supply chain profits. Unless the manufacturer has large fixed costs associated with each lot, the discount schemes that are optimal are volume based and not lot-size based. It can be shown that even in the presence of large fixed costs for the manufacturer, a two-part tariff or volume-based discount, with the manufacturer passing on some of the fixed cost to the retailer, optimally coordinates the supply chain and maximizes profits given the assumption that customer demand decreases when the retailer increases price. 

For products for which the firm has market power, two-part tariffs or volume-based quantity discoimts can be used to achieve coordination in the supply chain and maximize supply chain profits. 

For products for which a firm has market power, lot-size-based discounts are not optimal for the supply chain even in the presence of inventory costs. In such a setting, either a two-part tariff or a volume-based discount, with the suppher passing on some of its fixed cost to the retailer, is needed for the supply chain to be coordinated and maximize profits. 

The relevant part of the Drug Tariffs is divided into two lists List A and List B. List A gives an alphabetical index of products which the Advisory Committee on Borderline Substances (ACBS) has recommended for the management of the conditions shown under each product. List B is an index cross-linking clinical conditions and the products which the ACBS has approved for the management of those conditions. It is normal to consult List A first. 

Ksiazkiewicz, op. cit. (15), p. 41. According to L.F. Haber, two factors - climate, and transport conditions - had a negative influence on the production of heavy chemicals in the central and eastern parts of the Russian Empire. Summer temperatures rose to 45 °C and in winter the temperature fell to -40 C. The equipment had to be specially designed for such differences in temperature. With respect to the transport conditions, the railways were overburdened and the freight tariffs were very high. Haber, op. cit. (16), pp. 137, 141. 

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