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The Specialness of Zero

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  • Joshua S. Gans

Abstract

A model is provided whereby a monopolist firm chooses to price its product at 0. This outcome is shown to be driven by the assumption of free disposal alongside selection markets (where prices impact a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is 0. When costs are negative, the paper shows that a zero-price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that 0 can be a special zone with respect to policy analysis such as in antitrust.

Suggested Citation

  • Joshua S. Gans, 2022. "The Specialness of Zero," Journal of Law and Economics, University of Chicago Press, vol. 65(1), pages 157-176.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/714971
    DOI: 10.1086/714971
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    References listed on IDEAS

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    8. Imanol Arrieta-Ibarra & Leonard Goff & Diego Jiménez-Hernández & Jaron Lanier & E. Glen Weyl, 2018. "Should We Treat Data as Labor? Moving beyond "Free"," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 38-42, May.
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    Cited by:

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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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