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Vanity and Congestion: A Study of Reciprocal Externalities

  • Häckner, Jonas

    (Research Institute of Industrial Economics (IFN))

  • Nyberg, Sten

    (Research Institute of Industrial Economics (IFN))

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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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 354.

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Length: 14 pages
Date of creation: 22 Dec 1992
Date of revision:
Handle: RePEc:hhs:iuiwop:0354
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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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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