IDEAS home Printed from https://ideas.repec.org/a/aea/jecper/v29y2015i1p193-206.html
   My bibliography  Save this article

Retrospectives: The Marginal Cost Controversy

Author

Listed:
  • Brett M. Frischmann
  • Christiaan Hogendorn

Abstract

From 1938 to 1950, there was a spirited debate about whether decreasing-average-cost industries should set prices at marginal cost, with attendant subsidies if necessary. In 1938, Harold Hotelling published a forceful and far-reaching proposal for marginal cost pricing entitled "The General Welfare in Relation to Problems of Taxation and of Railway and Utility Rates." After several years and many pages of discussion, Ronald Coase gave a name and a clear formulation to the debate in his 1946 article "The Marginal Cost Controversy." We will tell much of the story of this controversy by comparing the frameworks of Hotelling and Coase, while also bringing in other contributors and offering some thoughts about contemporary relevance. The arguments marshaled by Coase (and his contemporaries) not only succeeded in this particular debate, as we shall see, but more generally served as part of the foundation for various fields of modern economics, particularly institutional, regulatory, and public choice economics as well as law and economics. Yet the underlying issues are quite difficult to resolve, and the strengths and weaknesses of the arguments for marginal cost pricing can turn on specific elements of the industry.

Suggested Citation

  • Brett M. Frischmann & Christiaan Hogendorn, 2015. "Retrospectives: The Marginal Cost Controversy," Journal of Economic Perspectives, American Economic Association, vol. 29(1), pages 193-206, Winter.
    • Handle: RePEc:aea:jecper:v:29:y:2015:i:1:p:193-206
    Note: DOI: 10.1257/jep.29.1.193
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.29.1.193
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Christiaan Hogendorn, 2012. "Spillovers and Network Neutrality," Chapters,in: Regulation and the Performance of Communication and Information Networks, chapter 8 Edward Elgar Publishing.
    2. Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523, January.
    3. Lipsey, Richard G. & Carlaw, Kenneth I. & Bekar, Clifford T., 2005. "Economic Transformations: General Purpose Technologies and Long-Term Economic Growth," OUP Catalogue, Oxford University Press, number 9780199290895.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christiaan Hogendorn & Brett Frischmann, 2017. "Infrastructure and General Purpose Technologies: A Technology Flow Framework," Wesleyan Economics Working Papers 2017-001, Wesleyan University, Department of Economics.

    More about this item

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:29:y:2015:i:1:p:193-206. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.