ECONOMIC BENEFIT EVALUATION OF ADVANCE DISCOUNTED FEE SYSTEMS

Abstract

  This paper investigates the economic benefits of the advanced discounted fee system in a monopolistic service market with the constrained supply capacities. The advanced discounted fee system functions as an allocation mechanism by which the limited service capacities are allocated to those who have higher utilities under the heterogeneity in consumers' preferences and demand uncertainty in demands. The market equilibrium model is formulated to investigate the economic benefits of the advanced fee systems. The profit and social welfare are improved by the advanced discounted fee systems, while the consumer surplus is worse off. In order to mitigate the income transfer from the households to the firms, the fees are necessary to be regulated by the government.