Disneyland and the Texas Tower

Photo: Adam B

A local artist paints landscapes and various Austin sights, including the Texas Tower (the university’s main building). He must pay the university a flat fee per year for the right to sell paintings of university property, emblems, or even anything containing the burnt-orange color. All are copyrighted. Also, if his sales rise above a certain level, he must pay the university 10 percent of his extra revenue.
This two-part tariff is fairly common, but why does it exist? Why not just a percentage, or why not just the fixed fee? A wonderful old paper (Walter Oi, “A Disneyland Dilemma,” Quarterly Journal of Economics, 1971) showed conditions when this pricing scheme makes sense for a price-discriminating monopolist. Looking at those conditions, I think that they are less relevant today than 40 years ago due to increased monitoring costs.
I would bet that, like Disneyland, more monopolists now charge only a fixed fee and forgo the percentages. That makes me wonder why my university imposes this two-part pricing scheme.