Taxing Sugar-Sweetened Beverages: A Nonlinear Pricing Approach

DOI: 10.1111/ajae.12416. With Steve Wu and Joe Balagtas.

Taxation is frequently implemented to discourage the consumption of sugary beverages. Despite their popularity, little is known about the impacts of taxes in markets where sellers deploy price discriminating techniques. To address this issue, we use a standard nonlinear pricing model with one product and two buyer types to study the effects of taxation on (i) consumption, (ii) consumer and producer surpluses, and (iii) the seller’s choice of market segmentation scheme. We find that a tax would unambiguously lead to reductions in consumption, consumer surplus, and expected profit. Additionally, the measure increases the likelihood that the sellers would exclude buyers with low preferences for the beverage to exclusively serve buyers with high willingness to pay for the product.