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Political culture and monopoly price determination

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Author Info
Gil S. Epstein
Shmuel Nitzan ()

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Abstract

In this paper we study the endogenous determination of monopoly price. Our proposed game of endogenous monopoly-price setting extends the literature on monopoly-price, monopoly rent-seeking contests and monopoly rent-seeking rent-avoidance contests by (i) determining the monopoly price such that it maximizes a composite utility function that depends on two components: expected social welfare and lobbying efforts. The welfare component has a positive or no effect on the utility while the lobbying efforts have a positive, negative or no effect on the utility (ii) introducing the political culture of the government and clarifying its role in the endogenous determination of monopoly price. In the proposed model the single parameter representing political culture is the weight assigned to the enhancement of social welfare. Our main concern is with the study of the relationship between this parameter and the proposed monopoly price and, in turn, the rent-seeking rent-avoidance efforts of the potential monopoly and the consumers and their aggregate expected benefit. Copyright Springer-Verlag 2003

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File URL: http://hdl.handle.net/10.1007/s00355-003-0198-x
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Article provided by Springer in its journal Social Choice and Welfare.

Volume (Year): 21 (2003)
Issue (Month): 1 (08)
Pages: 1-19
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Handle: RePEc:spr:sochwe:v:21:y:2003:i:1:p:1-19

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nitzan, Shmuel, 1991. "Collective Rent Dissipation," Economic Journal, Royal Economic Society, vol. 101(409), pages 1522-34, November. [Downloadable!] (restricted)
  2. Nti, Kofi O, 1999. " Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, vol. 98(3-4), pages 415-30, March. [Downloadable!] (restricted)
  3. Fabella, Raul V., 1995. "The social cost of rent seeking under countervailing opposition to distortionary transfers," Journal of Public Economics, Elsevier, vol. 57(2), pages 235-247, June. [Downloadable!] (restricted)
  4. Appelbaum, Elie & Katz, Eliakim, 1987. "Seeking Rents by Setting Rents: The Political Economy of Rent Seeking," Economic Journal, Royal Economic Society, vol. 97(387), pages 685-99, September. [Downloadable!] (restricted)
  5. Baik, Kyung H & Shogren, Jason F, 1992. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 359-62, March. [Downloadable!] (restricted)
  6. Rodrik, Dani, 1986. "Tariffs, subsidies, and welfare with endogenous policy," Journal of International Economics, Elsevier, vol. 21(3-4), pages 285-299, November. [Downloadable!] (restricted)
  7. Dani Rodrik, 1994. "What Does the Political Economy Literature on Trade Policy (Not) Tell UsThat We Ought To Know?," NBER Working Papers 4870, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
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  9. Che, Yeon-Koo & Gale, Ian L, 1998. "Caps on Political Lobbying," American Economic Review, American Economic Association, vol. 88(3), pages 643-51, June. [Downloadable!] (restricted)
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  10. Katz, Eliakim & Tokatlidu, Julia, 1996. "Group competition for rents," European Journal of Political Economy, Elsevier, vol. 12(4), pages 599-607, December. [Downloadable!] (restricted)
  11. Dixit, Avinash K, 1987. "Strategic Behavior in Contests," American Economic Review, American Economic Association, vol. 77(5), pages 891-98, December. [Downloadable!] (restricted)
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  15. Snyder, James M, 1989. "Election Goals and the Allocation of Campaign Resources," Econometrica, Econometric Society, vol. 57(3), pages 637-60, May. [Downloadable!] (restricted)
  16. Epstein, Gil S & Nitzan, Shmuel, 2002. " Stakes and Welfare in Rent-Seeking Contests," Public Choice, Springer, vol. 112(1-2), pages 137-42, July. [Downloadable!] (restricted)
  17. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers 9-92-2, Pennsylvania State - Department of Economics.
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  18. Paul, Chris & Schoening, Niles, 1991. " Regulation and Rent-Seeking: Prices, Profits, and Third-Party Transfers," Public Choice, Springer, vol. 68(1-3), pages 185-94, January.
  19. Dasgupta, Ani & Nti, Kofi O., 1998. "Designing an optimal contest," European Journal of Political Economy, Elsevier, vol. 14(4), pages 587-603, November. [Downloadable!] (restricted)
  20. Posner, Richard A, 1975. "The Social Costs of Monopoly and Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 807-27, August. [Downloadable!] (restricted)
  21. Gradstein, Mark, 1998. "Optimal contest design: volume and timing of rent seeking in contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 575-585, November. [Downloadable!] (restricted)
  22. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June. [Downloadable!] (restricted)
  23. Hillman, Arye L, 1982. "Declining Industries and Political-Support Protectionist Motives," American Economic Review, American Economic Association, vol. 72(5), pages 1180-87, December. [Downloadable!] (restricted)
  24. Konrad, Kai A & Schlesinger, Harris, 1997. "Risk Aversion in Rent-Seeking and Rent-Augmenting Games," Economic Journal, Royal Economic Society, vol. 107(445), pages 1671-83, November. [Downloadable!] (restricted)
  25. Tollison, Robert D, 1982. "Rent Seeking: A Survey," Kyklos, Blackwell Publishing, vol. 35(4), pages 575-602.
  26. Baik, Kyung Hwan, 1999. "Rent-Seeking Firms, Consumer Groups, and the Social Costs of Monopoly," Economic Inquiry, Oxford University Press, vol. 37(3), pages 541-53, July.
  27. Baik, Kyung Hwan, 1998. "Difference-form contest success functions and effort levels in contests," European Journal of Political Economy, Elsevier, vol. 14(4), pages 685-701, November. [Downloadable!] (restricted)
  28. Rama, Martin & Tabellini, Guido, 1995. "Endogenous distortions in product and labor markets," Policy Research Working Paper Series 1413, The World Bank. [Downloadable!]
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  29. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  30. Ellingsen, Tore, 1991. "Strategic Buyers and the Social Cost of Monopoly," American Economic Review, American Economic Association, vol. 81(3), pages 648-57, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gil Epstein & Shmuel Nitzan, 2006. "The Politics of Randomness," Social Choice and Welfare, Springer, vol. 27(2), pages 423-433, October. [Downloadable!] (restricted)
  2. Epstein, Gil S. & Nitzan, Shmuel, 2005. "The Struggle over Migration Policy," IZA Discussion Papers 1533, Institute for the Study of Labor (IZA). [Downloadable!]
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  3. Epstein, Gil S & Gang, Ira, 2002. "Government and Cities: Contests and the Decentralization of Decision Making," CEPR Discussion Papers 3585, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  4. Gil S. Epstein & Shmuel Nitzan, 2005. "Lobbying and Compromise," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. Hoffmann, Magnus & Schmidt, Frederik, 2007. "Piracy of Digital Products: A Contest Theoretical Approach," MPRA Paper 3289, University Library of Munich, Germany. [Downloadable!]
  6. Gil S. Epstein & Ira N. Gang, 2005. "Contests, NGOs and Decentralizing Aid," IZA Discussion Papers 1711, Institute for the Study of Labor (IZA). [Downloadable!]
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