Two-part tariff

It is designed to enable the firm to capture more consumer surplus than it otherwise would in a non-discriminating pricing environment.

Health club consumers, for example, may be uncertain about their level of future commitment to an exercise regimen.

Recall that the demand curve represents our consumer's maximum willingness to pay for any given output.

If the firm is perfectly competitive, it would charge price Pc and supply Qc to our consumer, making no economic profit but producing an allocatively efficient output.

If the firm is a non-price discriminating monopolist, it would charge price Pm per unit and supply Qm, maximizing profit but producing below the allocatively efficient level of output Qc.

The lump-sum fee enables the firm to capture all the consumer surplus and deadweight loss areas, resulting in higher profit than a non-price discriminating monopolist could manage.

Note that the firm is no longer producing the allocatively efficient output, and there is a deadweight loss experienced by society equal to area F - this is a result of the exercise of monopoly power.

The following items could be identified as two part tariffs; but it is possible some of them could be debated on the basis of the presence of fixed costs such as insurance which the firm cannot recoup in any other way.