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Monopoly Prices versus Ramsey-Boiteux Prices: Are they “Similar”, and: Does it Matter?

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  • Felix Höffler

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    Abstract

    Ramsey-Boiteux prices and monopoly prices are frequently regarded as being similar. This might suggest that sometimes monopoly pricing is close to the Ramsey-Boiteux second best and welfare superior to imperfectly regulated prices. This paper tries to specify what is meant by “being similar”. Both sets of prices are similar in a theoretical sense but differ not only with respect to price levels but can even lead to different price orders. The paper discusses the impact of competition and stresses the difference between market and residual demand, which are important for the Ramsey-Boiteux and the monopoly problem, respectively. Copyright Springer Science + Business Media, Inc. 2006

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    File URL: http://hdl.handle.net/10.1007/s10842-005-5648-y
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Industry, Competition and Trade.

    Volume (Year): 6 (2006)
    Issue (Month): 1 (March)
    Pages: 27-43

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    Handle: RePEc:kap:jincot:v:6:y:2006:i:1:p:27-43

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    Web page: http://springerlink.metapress.com/link.asp?id=105724

    Related research

    Keywords: Ramsey pricing; regulation; access pricing; termination;

    References

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    1. Kruse, Jörn, 2003. "Regulierung der Terminierungsentgelte der deutschen Mobilfunknetze?," Wirtschaftsdienst – Zeitschrift für Wirtschaftspolitik (1998 - 2007), ZBW – German National Library of Economics / Leibniz Information Centre for Economics, vol. 83(3), pages 203-208.
    2. Cowan, Simon G B, 1997. "Tight Average Revenue Regulation Can Be Worse Than No Regulation," Journal of Industrial Economics, Wiley Blackwell, vol. 45(1), pages 75-88, March.
    3. Prieger, James E, 1996. "Ramsey Pricing and Competition: The Consequences of Myopic Regulation," Journal of Regulatory Economics, Springer, vol. 10(3), pages 307-21, November.
    4. Bradley, Ian & Price, Catherine, 1988. "The Economic Regulation of Private Industries by Price Constraints," Journal of Industrial Economics, Wiley Blackwell, vol. 37(1), pages 99-106, September.
    5. Braeutigam, Ronald R., 1989. "Optimal policies for natural monopolies," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 23, pages 1289-1346 Elsevier.
    6. Gans, Joshua S. & King, Stephen P., 2001. "Using 'bill and keep' interconnect arrangements to soften network competition," Economics Letters, Elsevier, vol. 71(3), pages 413-420, June.
    7. Bradley, Ian & Price, Catherine, 1991. "Average revenue regulation and regional price structure," Regional Science and Urban Economics, Elsevier, vol. 21(1), pages 89-108, May.
    8. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-50, June.
    9. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
    10. Braeutigam, Ronald R, 1979. "Optimal Pricing with Intermodal Competition," American Economic Review, American Economic Association, vol. 69(1), pages 38-49, March.
    11. Kruse, Joern, 2003. "Regulierung der Terminierungsentgelte der deutschen Mobilfunknetze?," Working Paper 1/2003, Helmut Schmidt University, Hamburg.
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    Cited by:
    1. Thijs ten Raa, 2009. "Monopoly, Pareto and Ramsey Mark-ups," Journal of Industry, Competition and Trade, Springer, vol. 9(1), pages 57-63, March.
    2. repec:ebl:ecbull:v:12:y:2007:i:34:p:1-5 is not listed on IDEAS
    3. Martin Hellwig, 2008. "Competition Policy and Sector-Specific Regulation for Network Industries," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2008_29, Max Planck Institute for Research on Collective Goods.
    4. Ebenezer Tetteh, 2009. "Implementing differential pricing for essential medicines via country-specific bilateral negotiated discounts," Applied Health Economics and Health Policy, Springer, vol. 7(2), pages 71-89, June.
    5. William C. Miller, 2007. "Ramsey pricing with long run competition," Economics Bulletin, AccessEcon, vol. 12(34), pages 1-5.

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