||This paper study the effects of two-part tariff pricing in a
competitive environment with differentiated products and switching
costs. This is the case of long distance telephone service, where
there is a fixed monthly fee and a charge per call. This is also
the case for some financial institutions like mutual funds or pension
funds. In many of these industries there are also switching costs.
In this environment, markets have reacted by hiring sales agents
to switch consumers from one firm to another. Without considering
sales agents, social welfare is the same under a two-part tariff
regime as under single pricing, but the distribution of surplus
is different. When sales agents are introduced to the model, they
are able to reduce switching costs, and welfare might increase;
but they generate over-switching with respect to the social optimum.