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Vanity and Congestion: A Study of Reciprocal Externalities

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  • Hackner, Jonas
  • Nyberg, Sten

Abstract

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.

Suggested Citation

  • Hackner, Jonas & Nyberg, Sten, 1996. "Vanity and Congestion: A Study of Reciprocal Externalities," Economica, London School of Economics and Political Science, vol. 63(249), pages 97-111, February.
  • Handle: RePEc:bla:econom:v:63:y:1996:i:249:p:97-111
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    References listed on IDEAS

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    1. Häckner, Jonas & Nyberg, Sten, 1992. "Deregulating Taxi Services - A Word of Caution," Working Paper Series 353, Research Institute of Industrial Economics.
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    Cited by:

    1. Jonas Häckner & Astri Muren, 2015. "Counterfeiting and Negative Consumption Externalities – A Closer Look," Journal of Industry, Competition and Trade, Springer, vol. 15(4), pages 337-350, December.
    2. Rachel R. Chen & Eitan Gerstner & Yinghui (Catherine) Yang, 2009. "—Should Captive Sardines Be Compensated? Serving Customers in a Confined Zone," Marketing Science, INFORMS, vol. 28(3), pages 599-608, 05-06.
    3. Paul Calcott & Shuntian Yao, 2005. "Competition between highway operators: can we expect toll differentiation?," Economic Growth Centre Working Paper Series 0504, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    4. Robin Lindsey & André de Palma, 1997. "Private Toll Roads: A Dynamic Equilibrium Analysis," Tinbergen Institute Discussion Papers 97-057/3, Tinbergen Institute.
    5. Häckner, Jonas & Muren, Astri, 2012. "Counterfeiting and Consumption Externalities - A Closer Look," Research Papers in Economics 2012:2, Stockholm University, Department of Economics.
    6. van Ackere, Ann & Haxholdt, Christian, 2002. "Clubs as status symbol: would you belong to a club that accepts you as a member?," Socio-Economic Planning Sciences, Elsevier, vol. 36(2), pages 93-107, June.
    7. Shy, Oz, 2007. "Dynamic models of religious conformity and conversion: Theory and calibrations," European Economic Review, Elsevier, vol. 51(5), pages 1127-1153, July.
    8. Koford, Kenneth & Tschoegl, Adrian E., 1998. "The market value of rarity," Journal of Economic Behavior & Organization, Elsevier, vol. 34(3), pages 445-457, March.
    9. Tore Nilssen, 2011. "Risk externalities in a payments oligopoly," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 10(3), pages 211-234, December.
    10. Häckner, Jonas & Nyberg, Sten, 1992. "Deregulating Taxi Services - A Word of Caution," Working Paper Series 353, Research Institute of Industrial Economics.

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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