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Monopoly, Pareto and Ramsey Mark-ups

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  • Thijs ten Raa

Abstract

Monopoly prices are too high. It is a price level problem, in the sense that the relative mark-ups have Ramsey optimal proportions, at least for independent constant elasticity demands. I show that this feature of monopoly prices breaks down the moment one demand is replaced by the textbook linear demand or, even within the constant elasticity framework, dependence is introduced. The analysis provides a single Generalized Inverse Elasticity Rule for the problems of monopoly, Pareto and Ramsey.
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Suggested Citation

  • Thijs ten Raa, 2009. "Monopoly, Pareto and Ramsey Mark-ups," Journal of Industry, Competition and Trade, Springer, vol. 9(1), pages 57-63, March.
    • Handle: RePEc:kap:jincot:v:9:y:2009:i:1:p:57-63
    DOI: 10.1007/s10842-008-0030-5
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    References listed on IDEAS

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    1. William J. Baumol & Dietrich Fischer & Thijs ten Raa, 1979. "The Price-Iso Return Locus and Rational Rate Regulation," Bell Journal of Economics, The RAND Corporation, vol. 10(2), pages 648-658, Autumn.
    2. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-283, June.
    3. Cuthbertson, Keith & Dobbs, Ian M, 1996. "A Robust Methodology for Ramsey Pricing with an Application to UK Postal Services," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 229-247, September.
    4. Ingo Vogelsang & Jorg Finsinger, 1979. "A Regulatory Adjustment Process for Optimal Pricing by Multiproduct Monopoly Firms," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 157-171, Spring.
    5. Baumol, William J & Bailey, Elizabeth E & Willig, Robert D, 1977. "Weak Invisible Hand Theorems on the Sustainability of Multiproduct Natural Monopoly," American Economic Review, American Economic Association, vol. 67(3), pages 350-365, June.
    6. Mohring, Herbert, 1970. "The Peak Load Problem with Increasing Returns and Pricing Constraints," American Economic Review, American Economic Association, vol. 60(4), pages 693-705, September.
    7. Felix Höffler, 2006. "Monopoly Prices versus Ramsey-Boiteux Prices: Are they “Similar”, and: Does it Matter?," Journal of Industry, Competition and Trade, Springer, vol. 6(1), pages 27-43, March.
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    More about this item

    Keywords

    monopoly prices; Ramsey prices; inverse elasticity rules; D40; D60; L50;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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