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Second Best Pricing of Publically Produced Inputs: The Case of Downstream Imperfect Competition


  • Barbara J. Spencer
  • James A. Brander


Efficient second best pricing is examined for a public enterprise facing two distortions: a profit constraint and imperfect competition. We suggest a measure of downstream industry distortion for efficient pricing. The pricing rule constrains two elements: the shadow value of public profit and this measure of downstream distortion, whose sum determines whether the efficient second best input price is above or below marginal cost. Efficient pricing normally implies relative subsidization of imperfectly competitive downstream firms.

Suggested Citation

  • Barbara J. Spencer & James A. Brander, 1982. "Second Best Pricing of Publically Produced Inputs: The Case of Downstream Imperfect Competition," Working Papers 512, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:512

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    References listed on IDEAS

    1. L. G. Godfrey & M. R. Wickens, 1981. "Testing Linear and Log-Linear Regressions for Functional Form," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 487-496.
    2. Davidson, Russel & MacKinnon, James G., 1983. "Small sample properties of alternative forms of the Lagrange Multiplier test," Economics Letters, Elsevier, vol. 12(3-4), pages 269-275.
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    Cited by:

    1. De Borger, Bruno, 1997. "Public pricing of final and intermediate goods in the presence of externalities," European Journal of Political Economy, Elsevier, vol. 13(4), pages 765-781, December.
    2. Ming Chang, 1996. "Ramsey pricing in a hierarchical structure with an application to network-access pricing," Journal of Economics, Springer, vol. 64(3), pages 281-314, October.

    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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables


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