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Structure Regulation, Price Structure, Cross-Subsidization And Marginal Cost Of Public Funds

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  • MING CHUNG CHANG
  • HSIAO-PING PENG

Abstract

In this paper we study the social desirability of the structure regulation which transforms a single multi-product monopoly into an oligopoly where the industry produces differentiated complementary goods. In particular, we pay special attention to the cross-subsidization which will be eliminated by the structure regulation. It is established that if horizontal externalities between the goods are not too strong, then the monopoly has a socially optimal price structure. In contrast, the oligopoly always distorts the price structure. We also demonstrate that the monopoly will cross-subsidize a product if and only if this product has a relatively low absolute advantage. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd and The University of Manchester.

Suggested Citation

  • Ming Chung Chang & Hsiao-Ping Peng, 2009. "Structure Regulation, Price Structure, Cross-Subsidization And Marginal Cost Of Public Funds," Manchester School, University of Manchester, vol. 77(6), pages 675-698, December.
  • Handle: RePEc:bla:manchs:v:77:y:2009:i:6:p:675-698
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    Cited by:

    1. Ming Chang & Hsiao-Ping Peng, 2012. "Laffer effect, gross substitution, marginal cost of public funds and the level property of public good provision," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(5), pages 650-659, October.
    2. Ming Chung Chang & Shufen Wu, 2011. "Should Marginal Cost of Public Funds include the Revenue Effect?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 147(I), pages 1-16, March.

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