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Monopoly and Oligopoly Provision of Addictive Goods

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  • Driskill, Robert
  • McCafferty, Stephen

Abstract

This article investigates monopoly and oligopoly provision of an addictive good. Consumer preferences are modeled as in Becker and Murphy (1988). Addictive goods have characteristics that create interesting strategic issues when suppliers are noncompetitive. We characterize the perfect Markov equilibrium of a market with noncompetitive supply of an addictive good and compare it with the efficient solution. Depending on particular parameter values, we find a wide variety of possible steady-state outcomes, including ones with output above the efficient level and price below marginal cost. We also find that market power can be disadvantageous.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 42 (2001)
Issue (Month): 1 (February)
Pages: 43-72

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Handle: RePEc:ier:iecrev:v:42:y:2001:i:1:p:43-72

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Cited by:
  1. Luca Bossi & Vladimir Petkov, 2007. "Habits, Market Power, and Policy Selection," Working Papers 0702, University of Miami, Department of Economics.
  2. Bossi, Luca & Calcott, Paul & Petkov, Vladimir, 2011. "Optimal Tax Rules for Addictive Consumption," Working Paper Series 1673, Victoria University of Wellington, School of Economics and Finance.
  3. Bruce Seaman, 2004. "Competition and the Non-Profit Arts: The Lost Industrial Organization Agenda," Journal of Cultural Economics, Springer, vol. 28(3), pages 167-193, August.
  4. Driskill, Robert, 2006. "Multiple equilibria in dynamic rational expectations models: A critical review," European Economic Review, Elsevier, vol. 50(1), pages 171-210, January.
  5. Tarek Coury & Vladimir P. Petkov, 2007. "Delegation and Commitment in Durable Goods Monopolies," Economics Series Working Papers 336, University of Oxford, Department of Economics.
  6. Richards, Timothy J. & Allender, William J. & Hamilton, Stephen F., 2012. "Social Networks and New Product Choice," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124762, Agricultural and Applied Economics Association.
  7. Bossi, Luca & Calcott, Paul & Petkov, Vladimir, 2013. "Optimal tax rules and addictive consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 984-1000.
  8. Luca Bossi & Vladimir Petkov, 2013. "Monopoly, Time Consistency, and Dynamic Demands," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 339-359, September.
  9. Robert A. Driskill, 2002. "A Proposal for a Selection Criterion in a Class of Dynamic Rational Expectations Models with Multiple Equilibria," Vanderbilt University Department of Economics Working Papers 0210, Vanderbilt University Department of Economics.
  10. Luca Bossi, 2007. "Per Unit Versus As Valorem Taxes Under Dynamic Monopoly," Working Papers 0703, University of Miami, Department of Economics.
  11. Vatan, Antoine, 2013. "Habit formation and strategic interactions: A new gain from trade?," Economics Letters, Elsevier, vol. 121(1), pages 101-104.
  12. Akihiko Yanase, 2009. "Global environment and dynamic games of environmental policy in an international duopoly," Journal of Economics, Springer, vol. 97(2), pages 121-140, June.

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