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Monopoly Prices versus Ramsey-Boiteux Prices: Are they "similar", and: Does it matter?

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  • Felix Höffler

    () (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

Abstract

Ramsey-Boiteux prices and monopoly prices are frequently regarded as being similar. This might suggest that, in particular in network industries with large fixed costs, sometimes monopoly pricing is close to the Ramsey-Boiteux second best and welfare superior to imperfectly regulated prices. This paper tries to specify what is meant by "being similar", and it analyzes the welfare implications that can be drawn from comparing both sets of prices. Interdependence of demand and the impact of competition are discussed. We reinforce the view that monopoly prices are usually not "similar", and even if they are, this implies no positive welfare judgments on monopoly pricing.

Suggested Citation

  • Felix Höffler, 2005. "Monopoly Prices versus Ramsey-Boiteux Prices: Are they "similar", and: Does it matter?," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2005_7, Max Planck Institute for Research on Collective Goods.
  • Handle: RePEc:mpg:wpaper:2005_07
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    Keywords

    Ramsey Pricing; Regulation; Access Pricing; Termination;

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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