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Monopolistic Competition with Two-Part Tariffs

  • Nicholas Economides
  • Steven S. Wildman

Non-uniform pricing equilibria are shown to dominate uniform pricing equilibria in free entry, monopolistically competitive markets with identical consumers. The non-uniform pricing equilibrium is welfare optimal. Comparisons of Cournot and non- uniform pricing equilibria in terms of the equilibrium number of firms and sales per firm show that the positioning of Cournot equilibria relative to the welfare optimal configuration of firms and outputs depends on the relative curvatures of inverse demand and average cost functions, entry-induced rotation of inverse demand functions, and the relative price effects of changes in own and other firms outputs. The choice between the non-uniform and uniform pricing interpretations of equilibria in differentiated product markets may have important implications for policy analysis.

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File URL: http://raven.stern.nyu.edu/networks/95-10.pdf
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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 95-10.

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Date of creation: 05 Aug 1995
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Handle: RePEc:ste:nystbu:95-10
Contact details of provider: Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

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  1. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
  2. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  3. Schmalensee, Richard, 1972. "A Note on Monopolistic Competition and Excess Capacity," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 586-91, May-June.
  4. Mandy, David M, 1992. "Nonuniform Bertrand Competition," Econometrica, Econometric Society, vol. 60(6), pages 1293-30, November.
  5. Martin J. Beckmann, 1976. "Spatial Price Policies Revisited," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 619-630, Autumn.
  6. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  7. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  8. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  9. Harold Demsetz, 1968. "Do Competition and Monopolistic Competition Differ?," Journal of Political Economy, University of Chicago Press, vol. 76, pages 146.
  10. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
  11. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  12. Barzel, Yoram, 1970. "Excess Capacity in Monopolistic Competition," Journal of Political Economy, University of Chicago Press, vol. 78(5), pages 1142-49, Sept.-Oct.
  13. Hayes, Beth, 1987. "Competition and Two-Part Tariffs," The Journal of Business, University of Chicago Press, vol. 60(1), pages 41-54, January.
  14. Baker, Jonathan B & Baresnahan, Timothy F, 1985. "The Gains from Merger or Collusion in Product-differentiated Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 33(4), pages 427-44, June.
  15. Scherer, F M, 1979. "The Welfare Economics of Product Variety: An Application to the Ready-to-Eat Cereals Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 28(2), pages 113-34, December.
  16. Mandy, David M, 1991. "Competitive Two-Part Tariffs as a Response to Differential Rates of Time Preference," Economica, London School of Economics and Political Science, vol. 58(231), pages 377-89, August.
  17. Economides, Nicholas, 1989. "Symmetric equilibrium existence and optimality in differentiated product markets," Journal of Economic Theory, Elsevier, vol. 47(1), pages 178-194, February.
  18. Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
  19. Locay, Luis & Rodriguez, Alvaro, 1992. "Price Discrimination in Competitive Markets," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 954-65, October.
  20. Besanko, David & Perry, Martin K & Spady, Richard H, 1990. "The Logit Model of Monopolistic Competition: Brand Diversity," Journal of Industrial Economics, Wiley Blackwell, vol. 38(4), pages 397-415, June.
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