While conceptually acceptable, this strategy has two practical drawbacks that argue for a straight marginal-cost pricing
Given the setup in the last section, we see that it is quite unlikely that an insurer offering a package of basic coverage and a menu of ancillary coverages will follow marginal-cost pricing
, even in a competitive market.
Unless the ECPR were based on a marginal-cost pricing
rule (and thus in this case there were no customers of the rival's service whose willingness to pay would cover all relevant marginal costs), the exclusion of these "modest" willingness-to-pay customers by the ECPR access fee would not serve the goal of promoting production efficiency.(18)
(Recall that marginal-cost pricing
of merchandise was also practiced by independent sellers.) A point that must be addressed, of course, is the comparison between [e.sup.*] of the cartel and the total entrance fee [e.sup.0] of these same firms acting non-cooperatively.