Vanity and Congestion: A Study of Reciprocal Externalities
This paper models a private goods oligopoly market characterized by negative and reciprocal externalities. Although firms compete in prices and products are undifferentiated in equilibrium, the price-cost margin turns out to be positive. From a social perspective, the equilibrium price is higher than what is motivated by the negative externality. Hence, welfare can be improved by means of a price ceiling. Finally, industries with high fixed costs would be expected to exhibit a high degree of concentration on the supply side and considerable price-cost margins. Copyright 1996 by The London School of Economics and Political Science.
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Volume (Year): 63 (1996)
Issue (Month): 249 (February)
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- Häckner, Jonas & Nyberg, Sten, 1992. "Deregulating Taxi Services - A Word of Caution," Working Paper Series 353, Research Institute of Industrial Economics.