Price discrimination by a many-product firm

Determining the optimal selling strategy for a multiproduct firm facing con sumers with unobservable tastes is a difficult task. This paper aims to sho w how almost optimal nonlinear tariffs can often be found when the number o f products is large. Moreover, such tariffs take a simple form: (i) when ta ste parameters are independently distributed across products, the almost op timal tariff is a single cost-based two-part tariff which can extract virtu ally all consumer surplus; (ii) when tastes are correlated across products, perhaps because of income differences across consumers, the almost optimal tariff can be implemented as a menu of two-part tariffs each of which has prices proportional to marginal costs.