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The Specialness of Zero

Author

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  • Joshua S. Gans

Abstract

A model is provided whereby a monopolist firm chooses to price its product at 0. This outcome is shown to be driven by the assumption of free disposal alongside selection markets (where prices impact a firm’s costs). Free disposal creates a mass point of consumers whose utility from the product is 0. When costs are negative, the paper shows that a zero-price equilibrium can emerge. The paper shows that this outcome can be socially optimal and that, while a move from monopoly to competition can result in a negative price equilibrium, this can be welfare reducing. The conclusion is that 0 can be a special zone with respect to policy analysis such as in antitrust.

Suggested Citation

  • Joshua S. Gans, 2022. "The Specialness of Zero," Journal of Law and Economics, University of Chicago Press, vol. 65(1), pages 157-176.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/714971
    DOI: 10.1086/714971
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    Cited by:

    1. is not listed on IDEAS
    2. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.
    3. Sobolewski, Maciej, 2021. "Measuring consumer well-being from using free-of-charge digital services. The case of navigation apps," Information Economics and Policy, Elsevier, vol. 56(C).
    4. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
    5. MARTENS Bertin, 2020. "An economic perspective on data and platform market power," JRC Working Papers on Digital Economy 2020-09, Joint Research Centre.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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